Reports

Doing Well by Doing Good: The Benevolent Halo of Social Goodwill

Sean Blair and Alexander Chernev, 2012, 12-103

Report Summary

The idea that companies can do well by doing good has for years drawn the attention of managers and researchers. Despite a substantial amount of academic research and market data, little is known about the returns on social goodwill investments. Most prior research has assumed that a company’s socially responsible activities are likely to influence the overall image of the company without necessarily changing consumers’ beliefs of how the company’s products perform.

In this report, Sean Blair and Alexander Chernev provide evidence that a firm’s pro-social activities can have a significant impact not only on consumers’ goodwill toward the firm’s brand, but also on their beliefs about the firm’s products. They test their predictions in a series of four empirical studies.

Findings

Their first experiment demonstrates that a product is perceived to perform better when it is made by a socially responsible firm. Participants who were told that a winery donates a portion of its revenues to charity rated the same wine as tasting better than did participants who were not informed of this. They also find that this effect is a function of expertise, such that social goodwill is more likely to influence product perceptions (taste ratings) for nonexperts than for experts.

In a second experiment, they find that this positive effect is a function of consumers’ mindset. Thus, respondents in an abstract mindset believed that a product (running shoe) would be more comfortable when they were aware of the firm’s monetary donations compared to when they were not aware, whereas respondents in a concrete mindset were unaffected by the information about the firm’s social goodwill. The authors suggest this occurs because abstract thinking facilitates creation of higher level associations that relate consumers’ positive impressions of the company to their product beliefs.

A third experiment demonstrates that the positive effect of social goodwill on product performance beliefs is inversely related to the extent to which social goodwill is associated with the product. Thus, the positive impact of social goodwill is greatest when it is unrelated to the product (as in the case of monetary contributions to socially responsible causes) than when it is related to the product (as in the case of investments in socially responsible technologies). This experiment also shows that consumers’ expectations of superior performance translated into greater willingness to pay.

Finally, in a fourth experiment, the researchers find that the benevolent halo effect is a function of consumer beliefs about a firm’s motivation, such that it is attenuated when consumers suspect that the social goodwill is motivated by self-interest.

Managerial implications

These results show that investing in socially responsible causes not only creates goodwill toward the company but also bolsters consumer perceptions of the performance of company products, meaning that doing good can actually translate in doing well. Moreover, the results suggest that to avoid potential compensatory inferences, managers might consider de-emphasizing the link between the social goodwill and the product while emphasizing firm-specific associations. For example, rather than encouraging consumers to think of a product as being environmentally friendly, managers might encourage consumers to focus on the firm’s environmentally friendly image, reflected in its decision to make an environmentally friendly product.

Sean Blair is a Ph.D. candidate, and Alexander Chernev is Associate Professor of Marketing, Kellogg School of Management, Northwestern University. This research was supported by MSI Research Grant 4-1731.

Related links

How Social Goodwill Sways Consumer Beliefs (2012) [Article]

How Corporate Social Performance Influences Financial Performance: Cash Flow and Cost of Capital
Manoj K. Agarwal and Guido Berens (2009) [Report]

The Debate over Doing Good: Corporate Social Performance and Firm-idiosyncratic Risk
Xueming Luo and C.B. Bhattacharya (2008) [Report]

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