Why ‘The Halo Effect’ of Community Investment is Good for the Bottom Line
The idea of Doing Well By Doing Good is central to everything we do here at Benevity – really, it’s why we founded our company. The notion that companies can improve their business performance in a variety of ways by integrating social responsibility and charitable giving activities into their people and product practices strikes us as just common sense – but it’s also an idea that’s being validated through empirical research more frequently than ever.
There is a ton of observed data that identifies a ‘halo effect’ on a company’s brand and corporate reputation through the positive impact of effective Corporate Social Responsibility (CSR) initiatives and strategies. Great workplace giving, volunteering and matching gift programs correlate positively with employee engagement scores, as well as helping attract and retain today’s diverse and socially conscious workforce. Both are examples of hybrid business and social impacts that are resulting in companies investing more resources, technology and creativity in these areas.
But it gets even better…
Recently we came across this new research paper by Alexander Chernev and Sean Blair from the Kellogg School of Management of Northwestern University. “Doing Well by Doing Good: The Benevolent Halo of Corporate Social Responsibility” documents specific ways that acts of corporate social goodwill – even when they are unrelated to the company’s core business, as in the case of charitable giving – can alter perception of quality of a product, such that products of companies engaged in authentic pro-social activities are perceived as performing better.
That’s a pretty big deal: research proving that a company’s social goodness efforts increase the perceived quality of their products and services has tremendous implications for the business case for doing Good. It helps us feel like we’re not crazy at Benevity for building a platform that enables companies to integrate these initiatives into their respective businesses. We firmly believe (and the metrics confirm) that doing good has tangible bottom-line benefits – that companies who invest in pro-social behavior perform better financially.
The Taste of Goodness
The authors found that across four different types of products the perception of the quality or performance of the product actually increased when a connection was made with the benevolence of the manufacturer.* This was the case even where the product performance was directly observable by the consumer. Here are a few examples from the study:
Two groups of people were given a glass of wine and a card describing the winery. The wine was identical in both cases, but one group’s winery description card contained an additional note that the company donates 10% of its revenues to a specified charity. The group who were told about the charitable efforts of the vintner reported preferring the taste of that wine over the other they tasted – yet they were identical.
Similarly, a group was asked to rate a tooth-whitening product – with half of the people being told that the company responsible for the product made significant donations to charity. Both groups were shown before and after photographs of teeth. Once again, the people with an insight into the manufacturer’s social goodness efforts ranked the product as doing a better job whitening teeth.
There was a further discovery in the last experiment, which is also significant. The group that was provided with information about the company’s giving efforts was further segmented with additional information: one subset was told that the donation information came from an independent report, and the other that the company had advertised about their donation. The highest product ratings came from those people who understood that the information about the company’s community investment efforts came from an external report.
We encourage you to read the whole report – there are several interesting initiatives described, all with similar findings: people rate products higher when they make a connection to the authentic benevolence of a company. Chernev & Blair summed up their findings this way:
“Inferences drawn from a company’s prosocial actions are strong enough to alter the product evaluations even when consumers can directly observe and experience the product. The data further show that this effect is a function of the moral undertone of the company’s motivation for engaging in socially responsible behavior.”*
The Halo Effect Revisited
This ‘halo effect’ has been documented and researched frequently, but it has typically focused on the brand and reputational benefits that derive from corporate pro-social activities. This 2015 research credibly establishes that the benefits of CSR and corporate giving go beyond brand and reputational goodwill to include increasing the perceived quality and effectiveness of the product. It’s a whole new size and intensity of halo.
The research also identified that the impact of the prosocial behavior is more positive on perceived product performance, the more authentic the commitment to the Goodness initiative (i.e. the ‘halo’ effect decreases the more the company is seen as merely having PR-related motives). So before you run off doing a new cause-related marketing initiative, make sure it won’t be seen as lip-service. It follows from most of this that the halo effect or positive impact of these initiatives goes up the more the chosen cause or charity resonates with the individual – another reason why empowering choice in your charitable giving makes good sense.
The research credibly establishes that the benefits of CSR and corporate giving go well beyond brand and reputational goodwill to include increasing the perceived quality and effectiveness of almost any product. As solutions become increasingly commoditized and companies seek to differentiate themselves meaningfully to consumers and employees, a company raising the profile and investment of their corporate Goodness programs to the individual user level makes a ton of sense.
And if the C-Suite starts to embrace this, more companies will realize that ‘Doing Well By Doing Good’ is more than just a catchy tagline!