Companies donate billions of dollars every year, hoping their generosity will not only help important causes but also attract socially conscious consumers to their brands.What companies might not realize is that people focus less on the total amount a company donates than whether the donation seems like a sizable portion of the firm’s earnings. In fact, consumers favour brands that seem to be giving a larger cut of their profits, even if the total dollar amount is lower compared to brands that give a smaller proportion of profits but larger total dollar amounts to charity.

Company Donations: The Premise

Consumers prefer brands that seem to be giving a larger cut of their profits, even if the total dollar amount is lower compared to brands that give a smaller proportion of profits but larger total dollar amounts to charityPeople focus less on the total amount a company donates than whether the donation seems like a sizable portion of the firm's earnings.

The New Findings On Company Donations

People's perception is that brands that sacrifice relatively more of their earnings seem more generous. There's some good will associated with that type of generosity and therefore, people are more likely to prefer those brands.The findings come as many companies-reassured by a growing economy-rethink their philanthropic efforts.

How People Perceive Brands

<div dir="ltr">07 Apr 2022|
 by Pamela Reynolds</div><div dir="ltr">When it comes to corporate donations for brand enhancement, bigger isn't necessarily better. Research from Elizabeth Keenan and Leslie John offers new insights for companies trying to win the hearts of socially conscious consumers.</div>Companies donate billions of dollars every year, hoping their generosity will not only help important causes, but also attract socially conscious consumers to their brands. What companies might not realize is that people focus less on the total amount a company donates than whether the donation seems like a sizable portion of the firm’s earnings. In fact, consumers favor brands that seem to be giving a larger cut of their profits, even if the total dollar amount is lower compared to brands that give a smaller proportion of profits but larger total dollar amounts to charity, new research from Harvard Business School finds. For example, in 2015, Walmart donated $301 million, or 2 percent of its profits, compared with Target’s $111.5 million, or 5 percent. Which firm would consumers consider more generous? Given that Walmart donated more dollars to charity, one might expect Walmart to be the winner, but many consumers would choose Target, the research suggests. <BLOCKQUOTE>"People's perception is that brands that sacrifice relatively more of their earnings seem more generous."</BLOCKQUOTE>The findings come as many companies—reassured by a growing economy—rethink their philanthropic efforts. Corporate donations, which typically follow profits and gross domestic product, <a href="https://philanthropy.iupui.edu/news-events/news-item/giving-usa-2021:-in-a-year-of-unprecedented-events-and-challenges,-charitable-giving-reached-a-record-%24471.44-billion-in-2020.html?id=361" rel="noreferrer noopener" dir="ltr">took a hit</a> in the United States in 2020 as COVID-19 roiled the world economy. With corporate profits <a href="https://www.bea.gov/data/income-saving/corporate-profits" rel="noreferrer noopener" dir="ltr">bouncing back</a>, the research shows how future campaigns could appeal to consumers better, while still benefiting charities. “People's perception is that brands that sacrifice relatively more of their earnings seem more generous,” says Elizabeth Keenan, assistant professor of business administration at HBS. “There's some good will associated with that type of generosity and therefore, people are more likely to prefer those brands over others.” Keenan studied corporate donations with Leslie John, professor of business administration at HBS, and Anne Wilson, a lecturer at the Wharton School of the University of Pennsylvania. Their findings will appear in a forthcoming issue of <a href="https://www.hbs.edu/faculty/Pages/item.aspx?num=61742" rel="noreferrer noopener" dir="ltr">Marketing Letters</a>. <h2>For corporate giving, is less more? </h2>Over five studies conducted primarily in 2020 and 2021, Keenan and colleagues surveyed approximately 900 participants about their product preferences. In one study, participants were told that they would be thanked for their time with a $1 coupon for an ice cream from either Cold Stone Creamery or Baskin-Robbins. The researchers told participants that one of the shops had donated $12,000 to charity, representing 15 percent of its quarterly profits, while the other shop donated $23,000, or 7 percent of its quarterly profits. Most people, about 70 percent, chose the coupon for Cold Stone Creamery when they were told it donated relatively more to charity. But when Cold Stone was described as donating a higher absolute amount of money, only 41 percent chose its coupon. When Baskin-Robbins was said to be donating a higher percentage of its profits, 59 percent of people chose its coupon. Only 30 percent chose Baskin-Robbins when they thought it had donated a higher dollar amount but a lower percentage of its profits. The authors replicated this preference for brands that donate relatively more money, but smaller absolute amounts, in subsequent studies. The studies also showed that brands that donate relatively more are rated as more generous, and this perception of generosity drives consumer choice. Their results persisted despite participants acknowledging that the larger absolute donation is more impactful. <BLOCKQUOTE>"Consumers are a lot more informed about what firms are doing, so it’s important to be authentic in your giving."</BLOCKQUOTE>“It appears that generosity is being judged from the perspective of sacrifice and what they've given up relative to what they have,” says Keenan. “So, when you see a brand giving relatively less money compared to a brand that gives relatively more, even if the absolute amount going to the charitable cause in the first case is much larger and even when they acknowledge that the larger donation will be more impactful, people consider the brand as less generous.” In another study, Keenan and colleagues demonstrated that even when the timeframe of a giving campaign was manipulated, consumers continued to prefer the brand they felt gave a larger percentage of profits to those giving a larger sum of money. In that study, shoppers considering an online purchase were told that Brand X either donated 100 percent of profits earned over the last week, or $15,000, to the Feeding America nonprofit, or 2.5 percent of profits earned over the last year, or $19,500, to the charity. Despite the different dollar figures, as well as the different timeframes, participants were more likely to describe Brand X as more generous when it donated 100 percent of profits over one week. <h2>The psychology of giving </h2>Consumers might be making these choices for several reasons, even beyond judgments of generosity, Keenan says. For example, people shopping for brands that donate a higher percentage of profits may believe a larger proportion of what they spend is funneled to charity, possibly making it feel as if their dollars have more impact. In addition, they may see higher percentages of profits donated as emblematic of a brand’s social engagement. Shoppers may also assume a company committed to giving a robust percentage of profits to charity will continue doing so in the future. Keenan and colleagues found support for these additional beliefs; however, perceptions of a brand’s generosity remained the primary driver of their study results. <h2>Valuable advice for generous firms </h2>The results may frustrate deep-pocketed, socially engaged firms that donate a great deal to charity but a relatively low percentage of their profits, yet firms can learn from the findings, Keenan says. First, if companies want to impress consumers, they may need to consider ways to emphasize their generosity. One approach may be to run multiple shorter-term charitable campaigns in which they donate a higher proportion of short-term profits. They might also reassess their marketing of programs like Pledge 1% in which companies promise to donate 1 percent of annual profits, employee time or company equity to charity. However, one thing is clear: Companies shouldn’t cut their total philanthropic dollars even if they’re changing their timeframes to seem more generous, the researchers warn. “Consumers are a lot more informed about what firms are doing,” Keenan says, “so it’s important to be authentic in your giving because consumers seek out the information and will start making comparisons on their own.” [Pexels/Tara Winstead]

When it comes to corporate donations for brand enhancement, bigger isn't necessarily better. Research from Elizabeth Keenan and Leslie John offers new insights for companies trying to win the hearts of socially conscious consumers.

Stashed ideas

Companies donate billions of dollars every year, hoping their generosity will not only help important causes, but also attract socially conscious consumers to their brands.

What companies might not realize is that people focus less on the total amount a company donates than whether the donation seems like a sizable portion of the firm’s earnings. In fact, consumers favor brands that seem to be giving a larger cut of their profits, even if the total dollar amount is lower compared to brands that give a smaller proportion of profits but larger total dollar amounts to charity, new research from Harvard Business School finds.

For example, in 2015, Walmart donated $301 million, or 2 percent of its profits, compared with Target’s $111.5 million, or 5 percent. Which firm would consumers consider more generous? Given that Walmart donated more dollars to charity, one might expect Walmart to be the winner, but many consumers would choose Target, the research suggests.

The findings come as many companies—reassured by a growing economy—rethink their philanthropic efforts. Corporate donations, which typically follow profits and gross domestic product, <a href="https://philanthropy.iupui.edu/news-events/news-item/giving-usa-2021:-in-a-year-of-unprecedented-events-and-challenges,-charitable-giving-reached-a-record-%24471.44-billion-in-2020.html?id=361">took a hit </a>in the United States in 2020 as COVID-19 roiled the world economy. With corporate profits <a href="https://www.bea.gov/data/income-saving/corporate-profits">bouncing back </a>, the research shows how future campaigns could appeal to consumers better, while still benefiting charities.

“People's perception is that brands that sacrifice relatively more of their earnings seem more generous,” says Elizabeth Keenan, assistant professor of business administration at HBS. “There's some good will associated with that type of generosity and therefore, people are more likely to prefer those brands over others.”

Keenan studied corporate donations with Leslie John, professor of business administration at HBS, and Anne Wilson, a lecturer at the Wharton School of the University of Pennsylvania. Their findings will appear in a forthcoming issue of <a href="https://www.hbs.edu/faculty/Pages/item.aspx?num=61742">Marketing Letters </a>.

Over five studies conducted primarily in 2020 and 2021, Keenan and colleagues surveyed approximately 900 participants about their product preferences.

In one study, participants were told that they would be thanked for their time with a $1 coupon for an ice cream from either Cold Stone Creamery or Baskin-Robbins. The researchers told participants that one of the shops had donated $12,000 to charity, representing 15 percent of its quarterly profits, while the other shop donated $23,000, or 7 percent of its quarterly profits.

Most people, about 70 percent, chose the coupon for Cold Stone Creamery when they were told it donated relatively more to charity. But when Cold Stone was described as donating a higher absolute amount of money, only 41 percent chose its coupon.

When Baskin-Robbins was said to be donating a higher percentage of its profits, 59 percent of people chose its coupon. Only 30 percent chose Baskin-Robbins when they thought it had donated a higher dollar amount but a lower percentage of its profits.

The authors replicated this preference for brands that donate relatively more money, but smaller absolute amounts, in subsequent studies. The studies also showed that brands that donate relatively more are rated as more generous, and this perception of generosity drives consumer choice. Their results persisted despite participants acknowledging that the larger absolute donation is more impactful.

“It appears that generosity is being judged from the perspective of sacrifice and what they've given up relative to what they have,” says Keenan. “So, when you see a brand giving relatively less money compared to a brand that gives relatively more, even if the absolute amount going to the charitable cause in the first case is much larger and even when they acknowledge that the larger donation will be more impactful, people consider the brand as less generous.”

In another study, Keenan and colleagues demonstrated that even when the timeframe of a giving campaign was manipulated, consumers continued to prefer the brand they felt gave a larger percentage of profits to those giving a larger sum of money.

In that study, shoppers considering an online purchase were told that Brand X either donated 100 percent of profits earned over the last week, or $15,000, to the Feeding America nonprofit, or 2.5 percent of profits earned over the last year, or $19,500, to the charity. Despite the different dollar figures, as well as the different timeframes, participants were more likely to describe Brand X as more generous when it donated 100 percent of profits over one week.

Consumers might be making these choices for several reasons, even beyond judgments of generosity, Keenan says.

For example, people shopping for brands that donate a higher percentage of profits may believe a larger proportion of what they spend is funneled to charity, possibly making it feel as if their dollars have more impact.

In addition, they may see higher percentages of profits donated as emblematic of a brand’s social engagement. Shoppers may also assume a company committed to giving a robust percentage of profits to charity will continue doing so in the future.

Keenan and colleagues found support for these additional beliefs; however, perceptions of a brand’s generosity remained the primary driver of their study results.

The results may frustrate deep-pocketed, socially engaged firms that donate a great deal to charity but a relatively low percentage of their profits, yet firms can learn from the findings, Keenan says.

First, if companies want to impress consumers, they may need to consider ways to emphasize their generosity. One approach may be to run multiple shorter-term charitable campaigns in which they donate a higher proportion of short-term profits. They might also reassess their marketing of programs like Pledge 1% in which companies promise to donate 1 percent of annual profits, employee time or company equity to charity.

However, one thing is clear: Companies shouldn’t cut their total philanthropic dollars even if they’re changing their timeframes to seem more generous, the researchers warn.

“Consumers are a lot more informed about what firms are doing,” Keenan says, “so it’s important to be authentic in your giving because consumers seek out the information and will start making comparisons on their own.”

[Pexels/Tara Winstead]

Bite-sized knowledge
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Giving Back: Consumers Care More About How Companies Donate Than How Much

Company Donations: The Premise

The New Findings On Company Donations

How People Perceive Brands

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Giving Back: Consumers Care More About How Companies Donate Than How Much

Company Donations: The Premise

The New Findings On Company Donations

How People Perceive Brands

IDEAS ABOUT

MORE LIKE THIS

Worker Cooperatives Are More Productive Than Normal Companies

Does Distance Make the Consumer’s Heart Grow Fonder?

Simple Practices That Will Make You Want to Be More Generous - Thrive Global

It's time to

READ

LIKE

A PRO!

Bite-sized knowledge
to upgrade
your career