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Tuesday
Jul202010

Shared social responsibility: the new double bottom line

The double bottom line has never looked so good. Traditionally thought of profits plus positive social impact, new research suggest that markets can also be structured so that the financial bottom lines of both for-profit and not-for-profit improve with a single transaction.

Ayelet Gneezy from the University of California, San Diego ran a study at an amusement park where vistors were offered the ability to purchase a picture of themselves taken on a rollercoaster ride. She analyzed purchasing habits across four different pricing options. First, she tested the results from offering the photos first for a flat fee and secondly under a pay-what-you-want model. Not surprisingly, significantly more people chose the photo in the second model, but they also offered considerably less money for the photo.

But the next test is more interesting. Gneezy first modified her flat fee offer by noting that 50% of the proceeds would go to charity. The result was a neglible increase in interest. But by instead modifying the pay-what-you-want model in the same way, interest increased significantly and the price went way up from what people "wanted" to pay before.

A summary of the results:

Pricing Model

% Purchasers

Price Paid

Flat set fee

0.5%

$12.95

Pay what you want

8.4%

$0.92

Flat set fee – half to charity

0.57%

$12.95

Pay what you want – half to charity

4.5%

$5.33

 

The impact? Both the amusement park stands to makes more money than it did before and a charity is able to receive a generous donation if this model is adopted.

What human decison making is at work here? I can think of a few reasons:

  • $1 feels about right for what a photo is worth, but giving 50 cents to charity seems so little as to be embarrassing, so people give more to fall more in line with what a reasonable charitable contribution might look like ($2.66, or about the cost of a box of Girl Scout Cookies).
  • A pay-what-you-want scheme seems more in line with a traditional charitable donation construct. Giving half of an amont that a for-profit company set, on the other hand, seems manipulative.

I do wonder about how well these results transfer to other domains that are not using as a base item something (a lame amusement park photo) that most people value at about 0. Pay-what-you-want works much better, I think, for things like theater performances where you might not be able to afford the flat price, but you would go if you could pay just a bit less. I wonder if you valued a show at $15, thus paid that when asked to pay-what-you-can, if you would add to that total if you were then told that half the money would go to charity. I doubt it.

The full story can be found here.

Flickr credit: Rudloff

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