[Pricing Nugget #024] Customers in Crisis Mode (Part 3): Manage Guilt With the Warm Glow of Giving

In Pricing Nugget #022, we learned about three drivers that explain why customers become more price-conscious during economic downturns.

Today we look into the second driver. During economic downturns, customers become more price-conscious because they feel guilty when spending money.

How can you take away the feeling of guilt for your customers when parting with money?

We will find out today.

You offer them a positive emotion that offsets the negative feeling of guilt.

How do you do it? You attach a positive emotion to the spending.

One positive emotion you could attach is the feeling that spending is something they do for themselves.

You could add a claim that mentions the theme, like "You deserve it," so you attach a positive meaning to the item or the service they are about to buy. That's one way to do it.

Another way to offer a positive emotion is by attaching the spending to the warm glow of giving.

You attach the positive emotion of helping others to the spending that your customer is about to incur. "Giving" is usually referred to as some kind of donation attached to your purchase.

Research shows that customers might prefer a donation bundled with a product over a price discount of the same amount, particularly if they are about to spend on some hedonic or frivolous product.

This practice of adding a donation to your product is called "cause marketing."

Cause Marketing and the Cause

Cause marketing works particularly well 

• when the cause is relevant for your customer (e.g., regional cause vs. national cause), and
• when you make the cause very salient, i.e., you highlight the cause that you as a company support with your donation.

Cause Marketing and Price Discounts

Cause marketing is sometimes offered in combination with a price discount. What should be the level of the price discount?

Ideally, the price discount is not particularly low or particularly deep. It should be moderate. A low discount signals cheapness on the side of the company, and deep discounts take away the warm glow of giving from the customers.

Moderate price discounts work best with cause marketing.

Cause Marketing and Profitability

An interesting, but probably not the least important fact is that course marketing is profitable.

Researchers run a study in a real store environment and put one yogurt brand into a cause marketing campaign. They found that profits increased by almost +4% versus a control period.

But what I believe is very interesting as well, the main competitor brand lost profit of -13% versus the control period.

In a nutshell: What did we learn about cause marketing?

Cause marketing

• helps increase the profitability of your brand,
• it has a negative impact on your competitors (it moves market share from your competitor to your company),
• it requires less deep price discounts (if at all), and
• a purchase might help customers feel less guilty when spending money,
• in particular for hedonic products (that, by the way, would otherwise cause more guilt than utilitarian products.)

In economic downturns, offer donations in addition to your products and services.