Could Problems with Corporate Giving Make Customers See "Red"?

Last Updated Nov 30, 2009 6:59 PM EST

Michael Norton teaches marketing at the Harvard Business School. One main thrust of his research deals with how companies can deepen their relationships with customers by getting them involved with the creation of a product or service. Last week, we discussed his other main vein of research, corporate social responsibility (CSR) programs. Today, Norton explains how campaigns like Product Red do -- and don't -- work to engage customers in the giving experience.

BNET: What are some examples of where companies have tied a corporate social responsibility program into their business models?

Norton: My HBS colleague Young-me Moon and I wrote a case study on the Product Red campaign by companies like Gap, Apple and Motorola, where a portion of the proceeds will go to fight AIDS in Africa. They were trying to change the model of corporate philanthropy. In general, if Apple wants to donate to a charity, they will send a lump sum to the cause. The idea here is that you involve consumers in the process; they buy Red products that they probably want to buy anyway, but they are engaged in an effort of solving an important issue. They built into the business model the notion of charitable giving and tried to make it sustainable. When the overall program is profitable, the companies can keep doing it on a sustainable basis.

BNET: Wasn't that campaign widely criticized because not enough of the funds went to the charities they were allied with?

Norton: This is one of the interesting aspects of the case. The money that the corporate partners spent on marketing the campaign -- for instance the amount Gap spent on ads featuring Red products -- was way larger than the amount of money sent to combat AIDS in Africa. Some asked, "Well, why didn't Gap just send that money to the cause?" I think what people didn't understand was that those funds were not set aside for charity; it was money that Gap was going to spend on its marketing anyway. In other words, GAP had a certain amount to spend on marketing, which they could have spent on Red products or other regular products, and the company decided to use a lot of the money to promote Red products. Their mindset is if they sell a lot of Red products, they make more money, but in addition the causes that people care about get money as well.

BNET: Isn't there an inherent risk that if you trumpet a CSR program loudly but then only give a couple of cents on the dollar back to charity, consumers won't support that kind of business model? Won't they rebel?

Norton: When we teach this in the classroom, some students say if you wanted to give $100 to charity, you might buy a $100 Apple product instead and then only $10 will go to charity, but you will feel just as good about yourself. Many people in marketing right now are working on fixing these issues -- where intrinsic motivation is crowded out. They need to set the right balance between those two forces.

BNET: How do you reinforce your lessons about CSR in the classroom?

Norton: One of the exercises I run with my MBAs is to give them random companies and to ask, "If you are, say, Exxon-Mobil, how would you change your charitable giving?" It's better when you can have your employees or customers involved in giving to a cause that is somehow related to your business model. One group of students came up with a wonderful idea for an oil and gas and company where every time you filled up your SUV, you had the opportunity to donate a dollar to the environment. So, then, on the gas pump's display, you would have a tree. Every time you would donate a dollar your tree would get larger, and every time, you didn't donate a dollar, your tree would start to die. They were combining this tamagotchi kind of thing [based on the digital toy that required virtual feeding and other forms of care] that reminded people -- during the act of buying gas -- that they could indeed help improve the environment.

  • Jeremy Dann

    Jeremy Dann is a Lecturer in Marketing at UCLA's Anderson School of Management and an innovation consultant and writer. He has been a contributor to several business and technology publications and is the founding editor of "Strategy & Innovation."