Two essays on the effect of social norms on marketing actions

Abstract

Research has demonstrated that social norms can impact behavior and consumption in a meaningful way. A better understanding of social norms can result in a better understanding of consumers and of market dynamics and indicate a way for firm to improve their profitability.In Essay 1: The Effect of Social Pressure on Corporate Social Responsibility, I investigate consumers' reactions to products that include donations (a form of Corporate Social Responsibility, CSR). I identify ``warm glow'' and ``social pressure'' as the two principal drivers. On one hand, products offered by CSR-engaged firms are more appealing because of the warm glow consumers derive from choosing a product associated with a donation to their favored causes; such products directly enhance customer utility. On the other hand, once donations reach a threshold amount, consumers might feel social pressure to reciprocate the firm's donation. While such pressure can move some consumers to buy the product, it reduces utility and can lead some consumers to opt out of the market. Plainly, warm glow is favorable to selling CSR products, but does social pressure aversion imply that rational firms will never employ such appeals? Large numbers of firms do rely on social pressure based appeals (e.g., the Pink Ribbon campaign for breast cancer). When and why is this a wise choice?In two separate experiments, I find evidence for warm glow and social pressure effects. I formalize and quantify these effects with a novel utility function that embodies these opposing effects and find them to be of the same order of magnitude; hence, both are managerially relevant. To develop this idea further, I build a model of a profit-maximizing firm that recognizes these warm glow and social pressure aversion preferences of its customers. Under a duopolistic market structures, I find that if warm glow is large enough, a firm will also engage in social pressure appeals despite its customers' aversion to social pressure. Put differently, despite its negative effect on consumers' preferences, employing social pressure in a CSR context can be profitable. Why? Intuitively, social pressure diminishes price sensitivity. In Essay 2: Fairness Ideals in Distribution Channels, I examine the norm of fairness. Existing research suggests that concerns for fairness may significantly affect the interactions between firms in a distribution channel. I analytically and experimentally evaluate how firms make decisions in a two-stage dyadic channel, in which firms decide on investments in the first stage and then on prices in the second stage. I find that firms' behavior differs significantly from the predictions of the standard economic model and is consistent with the existence of fairness concerns. Using a Quantal Response Equilibrium (QRE) model, in which both the manufacturer and retailer make noisy best responses, I show fairness significantly impacts channel pricing decisions. Additionally, I compare four principles of distributive fairness: strict egalitarianism, liberal egalitarianism, and libertarianism, previously considered in the fairness literature, and a new principle of distributive fairness the sequence-aligned ideal that is studied first time in literature. Surprisingly, the new ideal, according to which the sequence of moving determines the formation of equitable payoff for players, significantly outperforms other fairness ideals.