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How Monetary Incentives Motivate Prosocial Behavior. Or Do They?

Applied Marketing Science (AMS) Chairman Bob Klein offers a few comments on Jean-Pierre Dubé, Xueming Luo and Zheng Fang's "Self-Signaling and Prosocial Behavior: A Cause Marketing Experiment" featured in the INFORMS journal Marketing Science.

Why do some people donate to charity or do other prosocial acts such as donating blood? Are they inherently altruistic? Or is there a “signaling” function at work that (they may believe) announces to the world that “I’m a good person”? Psychological research has found evidence of both forms of motivation. But what happens when no one else is aware of your prosocial action. Is there a “self-signaling” phenomenon that serves as confirmation of your “goodness” to yourself? And, if so, how can a firm use “self-signaling” to motivate desirable customer behavior?

A recent article published in the INFORMS journal Marketing Science (Jean-Pierre Dubé, Xueming Luo, Zheng Fang (2017) Self-Signaling and Prosocial Behavior: A Cause Marketing Experiment. Marketing Science 36(2):161-186. Jean-Pierre Dubé, Xueming Luo, Zheng Fang (2017) Self-Signaling and Prosocial Behavior: A Cause Marketing Experiment. Marketing Science 36(2):161-186) provides some empirical evidence of how incentives can work (or not) to motivate prosocial activity.

“Cause Marketing” as used in this article is “characterized by an offer from the firm to contribute a specified amount to a designated cause when customers engage in revenue-providing exchanges that satisfy organizational and individual objectives”. A consumer’s participation may be public, as when asked to contribute to charity at a checkout counter. In these cases, it is the public display of prosocial behavior that is believed to be a significant motivation. In other cases, there may be no public knowledge or awareness of the action and only the individual is aware of the behavior. One example is Amazon’s donation of a small percentage of your purchase to the charity of your choice when you place your order at smile.amazon.com rather than amazon.com. Here the personal awareness (self-signaling) of the prosocial behavior is theorized to have an impact on motivating the desired behavior. So, Amazon raises money for charity and, perhaps, I shop more at Amazon because it signals to me that I’m a good person. But what if the same amount of money were offered as a direct discount instead of being donated to charity? Or divided between a discount and charity? What’s the best strategy and why?

As the authors note, “standard economic theory” predicts that increased incentives will lead to an increased willingness to “perform an activity” such as undertaking a prosocial action. On the other hand, behavioral economists have identified many empirical examples where economic incentives have actually reduced prosocial behavior. The theory is that a monetary incentive “crowds out” the ego rewards associated with the prosocial action.

The authors of this paper focus on this self-signaling (only you know you donated) aspect of cause marketing and test the “crowding out” hypothesis with a large-scale experiment to measure the impact of various combinations of direct discount and charitable contribution. The experiment was conducted in a large Chinese city (possibly limiting any generalization to other cultures) with the cooperation of a large wireless provider. The promotion itself was an offer to purchase a ticket for a newly-released movie and the offer was delivered to subjects’ smartphones via an SMS text message. To accept the offer, a subject would click a link embedded in the SMS ad and the cost was immediately charged to the subject’s phone bill. The ads specified either a direct discount in the price of the ticket (5 levels up to a 75% discount), a donation to a specific local charity (4 levels of donation: 0%, 5%, 10% or 15%), or a combination of discount and donation. Both the promotion and the purchase decision were done using the subject’s phone, creating the potential for a self-signaling benefit. And a follow-up survey the next day provided data on a subject’s attitudes and motivations.

 The results were interesting. For the pure price discount cells, increasing the discount resulted in increased purchasing. A reassuring result. A similar result is seen for the pure donation cells, although for equal amounts, the pure price discount has a larger impact on ticket purchase than an equivalent donation. The follow-up questionnaire confirmed the self-signaling aspect of the donation as a factor in motivating the ticket purchase.

 And the impact of combining discount and donation confirmed the “crowding out” hypothesis. A negative interaction was found between discount and donation, especially at the higher levels of discount. Based on the additional data collected in the follow-up survey, the authors conclude that as the price discount increases, the self-signaling aspect of the donation gets “crowded out.” In other words, when the discount is large, I tell myself I’m doing it for the money rather than the ego award of which only I am aware.

 Ultimately, the “optimal” strategy for a firm will depend on its own objectives. Is its objective to maximize profit or to raise money for charity? The potential for a negative interaction between a price discount and a donation to charity implies that firm needs to be clear about its own objective to be able to choose the appropriate promotion strategy.

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