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Tuesday, October 03, 2006

Perception and Consumer Choice

Campbell's Soup is introducing a branded can for Breast Cancer Awareness month, and is anticipating doubling its sales of tomato and chicken noodle soup through Kroger stores.

Advertising Age reports:
Breast cancer in particular has been an increasingly popular cause for marketers to align with. Campbell will donate $250,000, or roughly 3.5 cents per pink can, to the Susan G. Komen Foundation through Kroger in exchange for its doubled order. The potential payoff is big for the company, even after the donation is deducted.

I should say the potential payoff is large. I have no idea what the markup on Campbell's soup is, but I bought tomato soup at Target the other day for about 80 cents. If the marginal cost of an additional can of soup is, say, twenty cents, and Target has a markup of 12.5% (assumption, of course), this would imply a gross profit of 50 cents per can to Campbell's.

This estimate might be a little high, but the point stands. If Campbell's gives up 3.5 cents per can sold to charity, it still stands to profit considerably from a doubling of its sales simply by aligning with a cause.

What I find interesting is the evidence that when a company aligns with a (popular) cause, consumers change their behavior. From the same Ad Age article:
According to a 2004 survey on cause marketing done by Boston brand-strategy firm Cone, 91% of 1,033 consumers say they have a more positive image of a company or product when it supports a cause and 90% will consider switching to another company if it's aligned with a cause.

That is a large percentage being swayed between competing brands based on the promise to contribute to a cause. This suggests to me that the competing brands being considered by the survey responders, which might be varied, are not considered that much different.

If alignment with the cause changes the label on the can but not the soup in the can and not the price of the soup in the can, why don't people buy Campbell's over other brands throughout the year? Perhaps they don't remember the alignment? An alternative explanation is that the differences between Campell's and Progresso are not that different. Tthe visual clue of a promise to contribute is sufficient to differentiate the soups in the can to sway behavior.

I also wonder if this switching behavior works only with perishable, or non-durable, goods. For instance, GM contributes to the UAW, which many (especially members of the UAW) consider a worthy cause. It doesn't seem that people are flocking to purchase GM products because of the implicit contributions. Although it might be that the GM product is sufficiently (negatively) differentiated from other products in the minds of many.

My point is that aligning with a "cause" would seem to work only in a few instances where a) revealing the promise to contribute sufficiently differentiates the product to increase sales, b) the cause is deemed "worthy" in the minds of the consumer. Another thought that nags is whether the ease/commonality of direct contributions to the cause by individuals (consumers) makes a difference.

Moreover, the survey seems to assume that only one firm/brand out of many is aligned with the cause, i.e., Campbell's but not also Progresso. If both firms were aligned, could it be that the consumers would not change brands, i.e., there is no gain to the alignment.

This would imply that firms/brands might be playing a repeated prisoner's dilemma game. If both companies align with (against?) breast cancer there is no gain. If no one aligns with (against?) breast cancer there is no gain. If one brand aligns and the other doesn't the one that does so gains. If this was a one-time game, you would expect both firms to align with the cause.

Thus, the firms find themselves having to reach a tacit cooperative equilibrium or play mixed strategies in which causes to align with. The mixed-strategy equilibrium would yield zero expected economic profit over the multi-period game. Thus, while Campbell's expects to yield profit in this round of the game, they might well lose profit to Progresso (or some other brand) in the next round of the game. In the "long run" this strategy doesn't provide economic profits.


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