Leif Nelson, an associate professor of marketing at the Haas School of Business at UC Berkeley, ran an experiment to test this hypothesis at a large amusement park. He tested 28,224 people against four conditions to gauge how much they would pay for an action picture of themselves on a rollercoaster.

The four conditions were: Would you pay the asking price of $12.95? Would you pay $12.95 if half went to a nonprofit? What would you pay if you could name your price? and What would you pay if you could name your price and half of it went to a nonprofit?

In Dollars and Cents
Nelson found that only half of 1% of rollercoaster riders who were offered the photo for $12.95 bought the picture, generating a profit of 6 cents per visitor. When half of the $12.95 was promised to charity, only slightly more riders bought it, generating about 7 cents per visitor. The philanthropic element did increase demand, but just marginally.

When riders were able to name their price, more people bought the picture (8.4%) but paid significantly less (92 cents on average, less than the production cost, which caused a loss).

When riders choose their price, knowing that a nonprofit would benefit, 4.5% chose to buy the picture. This figure is lower than the pay-what-you-want non-charity option, but higher than either fixed-price condition. But the thrill is in what riders forked up: an average of $5.33, or nearly 20 cents in profit per visitor (compared to 6 cents in profit at the fixed coast), as well as more money for the nonprofit.

In short, people will pay more when they can choose their price and know that a nonprofit benefits from their decision. This pricing and partnership model is the most lucrative for a company and also produces the highest funds for a nonprofit.

According to Leif, choice is key to the success of the model. Providing customers more choice–like selecting the nonprofit beneficiary–could earn even more dollars for the company and the nonprofit.

What Does This Mean For You?

• It’s worth trying! Although we’re seeing more companies adopt pay-what-you-want models, either in their entirety (One World Everybody Eats, Panera Bread or SAME) or in part (Radiohead’s “In Rainbows” album or Mixergy’s subscription option), the model is still fringe and viewed a bit as black magic.
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• Be clear about what you expect. Is it greater net profits? More consumers? A stronger mechanism for social impact? More effective nonprofit partnership? Per Leif’s research you won’t attract more consumers, at least not initially, but you will earn more profits and have a deeper social impact.
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• This study hinged on 50% of sales channeled to a nonprofit. I don’t know how it would work with a lower (or higher) donation amount, so be aware of varying results if you try different percentages.
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• Beware the paralysis of choice. Leif suggests that giving customers more choice might generate greater results. Again, it’s worth testing by offering a limited number of choices to the consumer. As in all marketing (even more so when it’s cause-related), keep it simple. Too many choices, contingencies and selling points is paralyzing to the consumer.

If you’ve tried something like this or know of other businesses who have (even companies that use a non-charity pay-what-you-want model), please let me know in the comments, on Twitter (@OKL) or through email, olivia[at]causecapitalism.com.

*”Shared Social Responsibility: A Field Experiment in Pay-What-You-Want Pricing and Charitable Giving” published by Leif and his colleagues appeared in the July 2010 issue of Science magazine.

This piece was originally written for and published on Reach Students.

If 94% of Millennials condone cause marketing why do only 53% report buying a product that benefits a cause in the past year?  The first finding is compelling, the second certainly is not, particularly given that in many stores you’d have to struggle not to buy cause-related products. So what explains this gap and what can your company do to close it?

The gap exists because cause marketing is predominately used by companies as a short-cut to boost product sales and consumer good-will. So we typically see cause marketing campaigns developed in a stand-alone manner, rather than as one element in support of a company’s larger social mission. Instead, companies should look to influence their selected cause or issue through deep-rooted commitments and multiple points of engagement.

“Cause-related marketing, as we know it, is dead. It’s not about slapping a ribbon on a product any longer.…Americans seek deeper involvement in social issues and expect brands and companies to provide various means of engagement,” says Carol Cone,  managing director of Brand and Corporate Citizenship at Edelman.

Genius brands like TOMS Shoes, Nike and RockCorps Orange and Boost Mobile have closed this gap by building programs around their long-term commitment to an issue and giving consumers the opportunity to participate through volunteering, advocacy and education. Many of these companies’ initiatives aren’t even tied to product purchases. They understand that creating deeper and longer-term relationship with consumers is much more valuable–in terms of products sales and brand perception, visibility, sustainability and  social impact–than an immediate cause-marketing success.

Here are 7 strategies you can use to close the gap:

1. Define your mission.
   Before you think about how to create a smashing campaign, choose a cause that means something to your brand or consumers. Then be specific about who you want to benefit and what you ultimately aim to achieve, both in affecting social or environmental change and in impacting your company.
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2. Invest in the cause longterm.
   A long-term commitment to a cause or organization helps define what your company stands for, enables a greater social impact and makes it easier for you to measure this impact. The whole idea of engaging consumers in your social mission is to take them on a journey of awareness and participation, through which they begin to associate your brand with real impact, action and commitment to good. Switching up the issues you care about confuses your message, weakens your impact and leaves consumers rolling their eyes at another ill-fated attempt to influence what they buy by way of their heartstrings.
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3. Lead with impact, not branding or splash.
   A quick way to turn off consumers and taint your brand is to use customers as a pawn in a high-on-glitz-but-low-on-impact campaign in the name of doing good. RockCorps‘ partnerships with Orange and Boost Mobile, in the United Kingdom and United States, respectively, focus on community involvement and volunteerism rather than cell phone ownership and use.  ”You can’t buy a ticket, you have to earn it,” is RockCorps’ tagline and mission. These RockCorps partnerships organize A-list concerts with a unique ticket policy: tickets can’t be bought, only earned by volunteering for several hours at a community event organized by RockCorps. This model shifts the focus to giving back to your community, rather than who can and can’t afford which phone or a ticket to hear Busta Rhymes.
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4. Be specific.
   Sixty-one percent of consumers take the time to learn the details of a corporate-nonprofit partnership before deciding whether to support it. The more specific your commitment is, the stronger the appeal. A commitment of one donated vaccine for every t-shirt purchased is stronger than a commitment of 10% of sales (how much is that?), and 10% of sales is stronger than “a portion of the proceeds.”Here’s one suggestion from a 16-year old American woman, “On the label, [there should be] a little paragraph about why the product is helping the environment and how it is made differently. That is something a new, limited-time organic Target brand did and it was very neat to know what special process went into making the clothes,” (quote taken from Alcatel Teen Lab).
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5. Connect customers to the cause.
   While 81% of consumers still want to support your company’s cause through transactional purchases they also want opportunities to volunteer for the featured cause (72%) and to provide feedback on the product or campaign (75%), per Cone Inc.’s 2010 Cause Evaluation Study. TOMS Shoes is known for its transaction-focused buy-one-give-one model.  But the company has also done an excellent job of providing customers opportunities to act, for example, through Style Your Sole shoe painting parties and annual “One Day Without Shoes” events that mobilize thousands of students to go barefoot for the day.

   Nike has partnered with Ashoka’s Changemakers to run several online competitions that challenge young social entrepreneurs to develop ways to leverage sport for positive social change. The initiative is completely independent of product purchases. By separating its commitment to sports for social change from its products, Nike is using its brand to motivate change and empower athletes and entrepreneurs. In the longterm, this visibility and consumer association could translate into product sales, but product sales are only one potential outcome–the other being social impact.
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6. Don’t exploit the cause or your consumers.
   Your cause is indicative of the impact you want to have. Don’t play fast and cheap with it, which means no pictures of abandoned dogs and ravaged children. Instead, find ways to communicate the urgency of their needs with dignity. The same is true for your consumers. When reporting on the brilliant success of your campaign, stay connected to the impact you’ve had and the ultimate change you’re determined to make, not how your campaign spiked product sales or utilized a new technology.
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7. Report on impact.
   Seventy-five percent of consumers want to hear more about the impact of corporate-nonprofit partnerships. How much money was raised and who did it help? How many people were served? How were they specifically affected?  The desire for feedback means you’ve successfully involved the customer in the cause. They feel personally connected to it and are interested to know how what they stood behind made a difference to someone. As a company, this is the best part because you’ve created a unique opportunity for an individual, or a million individuals, to make an impact.

Cone’s 2010 Nonprofit Marketing Trend Tracker shows yet another reason to report on your campaign or program results–because customers care.  Astoundingly, not even half of consumers think companies and nonprofits share enough about their partnerships. In this case, however, ‘more’ doesn’t just mean more. It means relaying only the information that’s important to consumers as they evaluate your business, your selected cause and nonprofit partner and the campaign in front of them.

Fifty-eight percent of consumers are more aware of corporate/nonprofit partnerships today than in the past (from the Cone study cited above).  Give them what they want while you have their (limited) attention on your cause and product. Here’s how.

• 61% take the time to learn the details of a corporate/nonprofit partnerships before deciding to support it.
  Don’t make the customer hunt. Explain what she needs to do to trigger what action from your company and how it will benefit what cause.Pampers 2008 campaign was ‘gettable’ in 2 seconds. When you buy a package of Pampers diapers, PG would make a donation of one child’s vaccine to UNICEF.  The more specific your commitment is, the stronger the appeal. A commitment of 1 vaccine is stronger than a commitment of 10% of sales (how much is that?), and 10% of sales is stronger than “a portion of the proceeds.”  Avoid qualifications. A good program is as clear as Pampers.  You’ve lost me if only my purchase of Tropicana Light from Safeway during March qualifies.
• 75% want to hear about the impact of your corporate/nonprofit partnership.
  Whether you partner with a nonprofit on a cause marketing or awareness campaign, event or product, consumers want to know the outcome.  How much money was raised and who did it help? How many people were served? How were they specifically affected?  We’re conditioned to want feedback. If I give you advice I want to know if it helped. When I write a blog post I want to know how much it’s read. The desire for feedback means you’ve successfully involved the customer in the cause. They feel personally connected to it and are interested to know how what they stood behind made a difference in someone’s life. As a company or nonprofit, this is the best part! You can stand up and say “Olivia, look how your decision to take this action helped this person.”
• 48% think nonprofits and companies disclose enough information about their partnerships to consumers, donors or others interested in the relationship.
  Which means more than half of the often-called jaded and harried consumer wants to know more about the problem my business is committed to solving and what opportunity I’m giving the customer to get involved.  Give more in the clarity and impact of your program, not in your marketing message. Consistent programs can lead to greater recognition, feelings of personal commitment and streamlined messages. Think about (Product) RED or Newman’s Own. We know what they stand for without reading the fine print. Their consistent campaigns have familiarized us with their mission, although I think both brands could do a much stronger job of communicating the results of their campaigns and donations triggered by our product choices.

What do you think? Do you still pay attention to or evaluate cause campaigns? What most convinces you about a given campaign?

We know that transparency is a strong indicator of a company’s social mission. Turns out, it’s also good for business. Recently, transparency has been shown to be a significant driver of ultimate financial performance. The thread between transparency and profit is trust. By opening up internal operations, successes and failures to the public and to employees, we demonstrate transparency as a company, which customers like. But the reason customers like this is because it allows them to trust us, to recommend us, to tell us when we err and to choose us again.

Thera N. Kalmijn of SureGround and R. Paul Herman of HIP Investor discussed these ideas in Trust, but Verify – a New Mantra for Customer Growth published on Sustainable Life Media. The article is excellent, examining how we can earn and nurture consumer trust and use it to rally support and profits for our social mission. Some of my favorite points from the article are below.

• Increased transparency can get you an 18% jump in revenue, while opaqueness seems to lead to a 6% drop in revenue (per EngagementDB’s 2009 report).
• Transparency is defined by engaging customers in social media and using multiple formats to communicate company operations.
• Top drivers in determining a company’s reputation are 1) transparency, 2) honesty and 3) trustworthiness, compared to 1) product quality, 2) customer needs and 3) financial performance as found four years ago (2010 Edelman Trust Barometer).
• The adages (trust has to be earned, trust is fragile) are still true today. Increasingly, social and environmental disclosures-especially metrics-can help drive or damage trust.
• If a company doesn’t meet its social and environmental problems, they risk brand loyalty, price premiums, and reputation.
• An effective sustainability strategy creates trust and helps protect and build brand.
• SureGround’s developed this schema to guide companies:
  • Transparency–Appropriate, accurate, timely information and metrics
  • Recognition–The company has relevant rankings (in sustainability, green, etc.) and appears often in sustainability indexes
  • Understanding your consumer–What social and environmental solutions give them value?
  • Signaling–Visual “shortcuts”  that signal sustainability, e.g. labels, social media, media awareness, reporting*
  • Teaming–Two-way engagement with stakeholders including NGOs, industry partners, supply chain, and customers
• Seeing is believing. Trust must be signaled and then verified, i.e. labels, ratings, industry recognition.
• Developing an understanding of customer concerns creates deeper relationships and trust.
• Partnering with NGOs to address relevant social and environmental issues is also critical to trust. “The overwhelming majority of the informed public say they would be more likely to trust a company that partners with NGOs to solve global challenges such as climate change, poverty, or disease…” (2010 Edelman Trust Barometer).
• Failures in any the areas of the TRUST schema lead to reputational and financial risk–even more so when a company’s core strategy is based on social and environmental promises.

*Caroline Duell decided to certify Elemental Herbs as a B Corporation because the certification was a visual symbol of what her business stood for.

What’s your experience with building trust in your company? Alternatively, as a customer, has a specific incident earned or lost your trust in a company? Does it only take one slip or is it a compilation of openness, listening and reporting?

I invited business philanthropy and cause marketing consultant Maggie F. Keenan Ed.D to Cause Capitalism to talk about what a giving program is, how to start one, when to begin and how it will benefit your business.  Maggie is the owner and Chief Giving Strategist at givingadvice and author of Small Businesses Give Big: Why charitable giving is a great business strategy! She defines ‘giving strategy’ as giving back through financial donations, in-kind products, time cause marketing campaigns.

Click the player to listen to our conversation or right-click and save to download.

• Business that give back share four commonalities: (1) they feel a sense of purpose to help their community; (2) their giving is a reflection of their personal, family or business values; (3) they make giving (regardless of how much) a part of their business from the beginning; (4) they let the rewards of giving flow back into their business without seeking results.
• Begin giving now.
• Have a plan that guides your giving program. One of the common mistakes that Maggie sees is businesses that don’t have a plan in place. Think about trying to run a business without a knowing your market or customer base. Giving is a business strategy, so treat it like one and have a plan–read on to see how.
• Decide where you want to give. To determine what cause or organization to support, look at where you’ve donated in the past. What issue do you want your business to help solve? What cause can you commit 100% of yourself to? In addition, the cause should have some connection to your business or customers. Find a balance between the two.
• Decide how you want to give. Maggie advises companies to use a mix of financial donations, cause marketing and employee-led fundraising events or volunteering to form their giving strategy.
• Decide when you want to give. Look at your cash-flow. If you business slows in the summer, that’s the time to do fundraising events and employee-volunteer programs. When sales pick up during the holidays, you can roll-out a cause marketing program.
• Your giving strategy should be managed and measured like every other aspect of your business. Institute processes for it and think about how you can make it turn-key.
• We’re tired of hearing how much you’ve done. How are you advancing the cause you’re passionate about? Maggie is emphatic when she says that your messaging needs to be “cause-centric, not ego-centric.”  There are no pointers for making your message cause-centric because commitment to a cause can’t be faked. Fakers talk about what they’ve given or how much they’ve done. Passionistas talk about why the cause is important and why they are excited to be supporting it.
• You don’t have to share you numbers. Small businesses may feel chagrined (or deterred) by the amount they can contribute. But it’s not about the amount, it’s about your commitment to a cause and your ability to engage your employees and consumers in the cause (e.g., cause marketing campaigns that use percentage-of-sale or pinup tactics or event fundraisers).
• Maggie sees giving not as a business obligation but as a benefit.

Thank Maggie or tell her what you think of the interview on Twitter.