How to drive down supply costs and look good doing it

Published: 2013-12-31

Professor Anil Arya and Professor Brian Mittendorf

Yoplait donates a portion of its proceeds to the Susan G. Komen breast cancer charity; Target gives money back to local school districts; Apple, Coca-Cola, Starbucks and other large firms join together in donating proceeds to fight AIDS in Africa. Linking product sales to charity has proven to be effective in driving sales through demand. But what about supply?

A study by Fisher’s Anil Arya (pictured left) and Brian Mittendorf found that cause marketing -- pledging a portion of sales from a specific product to charity -- can ultimately impact the price suppliers charge companies. The research revealed that engaging in cause marketing can not only result in increased sales, but also has key supply market effects:

  • A company’s cause marketing pledge makes its input demand much more sensitive to supplier pricing
  • This sensitivity compels suppliers to cut their prices so as to restore or boost demand

The end result of cause marketing is that a company not only reaps the altruistic and financial rewards of a socially conscious marketing campaign, but it is also able to drive down supply prices by making its supplier a tacit -- even unwilling -- partner in corporate philanthropy.

Research in progress