When Giv­ing Means Los­ing: Do Char­i­ta­ble Pro­mo­tions Pay Off?

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When you’re check­ing out at the su­per­mar­ket this hol­i­day sea­son, the cashier may ask if you would like to in­clude an ex­tra dol­lar for a char­ity. Or, your credit card com­pany may of­fer to do­nate a cer­tain per­cent­age of each pur­chase to a good cause. Firms of­ten run phil­an­thropic cam­paigns in hopes of in­creas­ing cus­tomer loy­alty and pur­chases. But does it al­ways pay off? Ser­guei Netes­sine, Whar­ton vice dean for global ini­tia­tives and pro­fes­sor of op­er­a­tions, in­for­ma­tion and de­ci­sions and two other re­searchers — Jasjit Singh from INSEAD and Nina Teng from Ox­ford Univer­sity — ex­am­ined the ef­fec­tive­ness of char­itylinked pro­mo­tions by look­ing at them in the con­text of a mo­bile ride-hail­ing taxi ser­vice. Their paper, which was pub­lished in Man­age­ment Sci­ence, is ti­tled “Phil­an­thropic Cam­paigns and Cus­tomer Be­hav­ior: Field Ex­per­i­ments on an On­line Taxi Book­ing Plat­form.” Netes­sine spoke with Knowl­[email protected]­ton about the find­ings. An edited tran­script of the con­ver­sa­tion fol­lows. Knowl­[email protected]­ton: What’s the busi­ness case be­hind of­fer­ing phil­an­thropic cam­paigns? What are com­pa­nies hop­ing to achieve? Ser­guei Netes­sine: Typ­i­cally, there is some pro­por­tion of cus­tomers who are just at­tracted to char­i­ta­ble causes, and com­pa­nies try to cap­i­tal­ize on that and make it look like their goals are aligned with some kind of a no­ble, char­i­ta­ble, phil­an­thropic cause. As a re­sult, there are a num­ber of those phil­an­thropic cam­paigns. For ex­am­ple, there was a fa­mous one in 1983 when Amer­i­can Ex­press do­nated money for the restora­tion of the Statue of Lib­erty. More re­cent ex­am­ples would be Dunkin’ Donuts and Spe­cial Olympics, and Hanes and The Sal­va­tion Army. The hope is just to ap­peal to phi­lan­throp­i­cally-minded cus­tomers and make them big­ger users of your ser­vice. Knowl­[email protected]­ton: Your paper in­di­cates that the over­all size of char­i­ta­ble giv­ing from these ini­tia­tives grew from just $100 mil­lion in 1990 to al­most $2 bil­lion in 2015, and that amount is prob­a­bly go­ing to in­crease. While this seems to be work­ing out re­ally well for the char­i­ties re­ceiv­ing the funds, what is the cost to com­pa­nies? Is it ex­pen­sive to im­ple­ment these cam­paigns?

The com­pany is hop­ing that cus­tomers will be us­ing its ser­vices more in the short term and also in the long term. This is just not some­thing we found

Netes­sine: Our paper shows that it is very ex­pen­sive to im­ple­ment these cam­paigns. We looked at the cost of the cam­paign — which for this par­tic­u­lar com­pany is in giv­ing free rides or dis­counted rides — ! you get from it. Of course, the com­pany is hop­ing that cus­tomers will be us­ing its ser­vices more in the short term and also in the long term. This is just not some­thing we found. We found that peo­ple tend to take rides us­ing the dis­count that is cur­rently of­fered, but [the cam­paign] doesn’t re­ally change be­hav­ior in the long term. So, the cost is fully borne by the com­pany, and the ex­tra rev­enue that the com­pany gets — which is a small per­cent­age of the fare — does not seem to jus­tify what they are do­ing. Knowl­[email protected]­ton: You worked with the lead­ing on­line taxi book­ing ser­vice in Asia to con­duct your ex­per­i­ment. What kinds of pro­mo­tions did you test, "Netes­sine: We ran three ex­per­i­ments with them. The nice thing with a tax­i­hail­ing or ride-hail­ing ser­vice is that peo­ple use it of­ten, so if you send them re­spond to those pro­mo­tions. We sent them sev­eral pro­mo­tions. Some were sim­ply, “Take a ride within ! # get $5 off,” ver­sus, “Take a ride now, and we will con­trib­ute on your be­half $5 to­wards Nepal earth­quake re­lief.” That was a good cause at the time be­cause the Nepal earth­quake had just hap­pened, so it was on ev­ery­one’s mind in Asia. We also tried some­thing a lit­tle bit more neu­tral. We tried send­ing some mes­sages about con­tribut­ing to the Red Cross rather than con­tribut­ing to re­lief in a par­tic­u­lar coun­try. …The up­take on these pro­mo­tions was pretty small. [When we of­fered] cus­tomers just a cash re­duc­tion on their fare, takeup was any­where be­tween 4% and 15%, which is pretty low. But when we talked about char­i­ta­ble pro­mo­tions, it was 5 to 10 times lower, so it was 1% to 3%. It looks like peo­ple are not very char­i­ta­ble, to say the least. Knowl­[email protected]­ton: In your paper, you dis­cuss your method in study­ing this. What is the im­por­tance !per­i­ment rather than in a lab­o­ra­tory? Netes­sine: Lots of stud­ies be­fore us ad­dressed very sim­i­lar is­sues in the lab. In the lab, you can of­fer sub­jects cer­tain pro­mo­tions and ask them to pick be­tween a mon­e­tary, purely cash, dis­count ver­sus some kind of char­i­ta­ble cause, and you can ask them which ones they would take. This is not go­ing to tell you any­thing about sub­se­quent usage of those ser­vices, which is what com­pa­nies care about. They hope that if you think they’re more char­i­ta­ble, if you think that their brand is some­how as­so­ci­ated with these phil­an­thropic causes, maybe in the long run you will use the ser­vice more. In the lab, that’s just pretty much im­pos­si­ble to repli­cate other than just sim­ply ask­ing peo­ple, “Would you use this ser­vice more later on?” But that’s not a very good in­di­ca­tor of how the ser­vice would be used. That’s the ad­van­tage of ! we could con­trol for longterm rid­ing im­pli­ca­tions. We could also care­fully screen cus­tomers, be­cause some peo­ple use pro­mo­tions more of­ten or less of­ten, and we could see how ac­tive rid­ers and non­ac­tive rid­ers use pro­mo­tions. Some peo­ple just never use pro­mo­tions, and oth­ers use pro­mo­tions all the time. Some peo­ple ride a lot, and some peo­ple don’t ride a lot. And none of that is rel­e­vant in the lab­o­ra­tory. In that sense, we had much more de­tailed data, which al­lowed us to ob­serve what peo­ple ac­tu­ally do in the real world. Knowl­[email protected]­ton: Com­pa­nies are likely go­ing to con­tinue of­fer­ing these char­ity pro­mo­tions in search of that warm glow that they want to get with cus­tomers. Given what you’ve found in your study, what would you sug­gest they do to make these cam­paigns more ef­fec­tive for them? Netes­sine: What we found in the paper is that when you give peo­ple, for ex­am­ple, $10 off ver­sus $1 off, they re­act more strongly — maybe not 10 times more strongly, but maybe five times more strongly. Takeup re­ally in­creases on big­ger amounts. But when you tell [cus­tomers], “We’re go­ing to con­trib­ute $1 to Nepal re­lief,” ver­sus $10 to Nepal re­lief, there is al­most no dif­fer­ence. It looks like there is this kind of a warm-glow ef­fect. As long as I con­trib­uted some­thing, I feel like I am char­i­ta­ble. I feel like I’m phil­an­thropic. If you re­ally want to en­gage more cus­tomers in us­ing these pro­mo­tions, I would say there is no point in giv­ing big amounts be­cause peo­ple en­gage equally with big amounts and small amounts. And it’s much, much cheaper for the com­pany to give small amounts for pro­mo­tions. That might not be a good mes­sage for the char­i­ties, but if the goal is to ramp up a wider pop­u­la­tion of con­sumers, then small amounts might be the way to go. One in­ter­est­ing ob­ser­va­tion that we made is that this space of ad­ver­tis­ing and mo­bile mes­sages is re­ally, re­ally crowded for ride-hail­ing plat­forms. I’m sure you can re­late if you ride Uber or Lyft. They keep throw­ing in­cen­tives at you and at driv­ers. Ac­cord­ing to our es­ti­ma­tions, this re­ally does not pay off. Take-up is pretty small, but more im­por­tantly, it costs a lot of money to run those pro­mo­tions and there is no & them. I would care­fully re­con­sider how those ad­ver­tis­ing cam­paigns are run and try to mea­sure a real kind of feed­back on them, a real in­crease in cus­tomer base. There is an im­por­tant caveat to our study: We looked only at pro­mo­tions to ex­ist­ing cus­tomers. Maybe there is some­thing to be said about study­ing sim­i­lar cam­paigns that are tar­geted at new cus­tomers. We could not do that be­cause we don’t have [ac­cess to the] phones of cus­tomers who are not cur­rently work­ing with the com­pany. Knowl­[email protected]­ton: How would you ex­pand this re­search? Netes­sine: I think the im­por­tant con­sid­er­a­tion in this set­ting is com­pe­ti­tion. One data point that we did not have, and which is very hard to get, is what other ride-hail­ing plat­forms are do­ing. Uber is ev­ery­where, Lyft is al­most ev­ery­where, and then there are lo­cal taxis, and all of them ad­ver­tise. It would be in­ter­est­ing [to look at the] com­pet­i­tive dy­nam­ics. For ex­am­ple, peo­ple switch­ing rides from one plat­form to an­other, be­cause most of us have two, three, four apps in­stalled on our phones and tend to use what­ever is cheaper, what­ever is avail­able at the mo­ment. It’s in­even on one plat­form. Two plat­forms — al­most im­pos­si­ble, es­pe­cially if they are com­peti­tors. That would be my dream sce­nario, to see how com­peti­tors re­act to those ad­ver­tis­ing mes­sages and how cus­tomers trade off those kinds of prices and pro­mo­tions across dif­fer­ent plat­forms.

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