Archive for March, 2011

Is There a “Right Way” To Do Good?

Wednesday, March 23rd, 2011

Though cause-related marketing has been on the rise for some time, it’s been more prevalent in light of recent events in Japan and other natural disasters that have occurred in past years. An article in The Wall Street Journal highlights consumer skepticism surrounding these cause-related marketing campaigns. Smeal’s Karen Winterich, assistant professor of marketing, studies consumer behavior and offers some thoughts below.

While such disasters give companies the opportunity to show they care, it seems companies often can’t win when they offer aid. As Steel pointed out in her article, Microsoft’s Bing took a hit from consumers when offering to donate to Japan relief efforts every time a person forwarded their message on Twitter. Because of the backlash, Microsoft made a flat donation.

However, such flat donations have been criticized not only as marketing ploys but also because some believe offering money is the easy way out. Some think that companies should be offering more effortful contributions, such as products or services (i.e., employee volunteers), rather than money alone. Additionally, cause-related marketing efforts are often more successful when consumers invest some (albeit minimal) effort to feel they personally have contributed to the cause.

I have to wonder how much we, as consumers, should care how and by whom the money is given, as long as it provides the much-needed aid. Maybe that’s not the real issue regarding consumer backlash in response to some corporate donations to Japan relief efforts. Perhaps, it’s the short-term nature of the firm’s efforts that doesn’t “fit” with their long-term behavior.

When Lady Gaga, who topped DoSomething.org’s 2010 list of most charitable celebrities, sells a bracelet to raise money for Japan relief, this “fits” with her past charitable behavior and we believe it’s conducted with good intentions.

If a company consistently does good for the community, then offering $1 million for the Japan relief efforts, regardless of whether it’s a flat donation or raised through consumer purchases or word-of-mouth, shouldn’t make much difference to consumers. However, if the company has not helped out before, consumers may ask, “Why start now?” If you’re not helping your own community on a day-to-day basis, then maybe the consumers have a right to knock you for helping Japan.

A company’s preference to make a donation rather than give a discount for product purchases only tends to exist when the donation is helping a cause with which they identify. Firms are likely to benefit more if they step back and help their community before diving in to help only when a disaster hits.

Tags: Cause-Related Marketing, Japan, Marketing, Winterich
Posted in News | 6 Comments

Too Many Banks

Wednesday, March 2nd, 2011

In today’s Philadelphia Inquirer, Smeal’s J. Edward Ketz and Anthony H. Catanach Jr. of Villanova argue that there are too many banks in the United States offering indistinguishable products to their customers. These banks, they say, are under enormous pressure to raise their margins, which eventually leads many of them down the road of questionable loan activities. Their solution:

First, reduce the number of financial institutions: 15,000 institutions simply cannot all make money by making loans funded by deposits to customers who tolerate them simply because they need check and processing services. Is a bank on every corner really necessary? As these regulated institutions struggle to meet performance targets in a talent-poor, over-banked industry, is it any wonder that they often turn to questionable, high-yield investments fueled by volatile, unstable funding sources? A banking glut forces institutions to compete aggressively for a fixed pool of high-quality investments, loans, and talent, meaning some banks will be forced to accept lower quality assets and personnel to operate.

Banking regulators can initiate this industry contraction by denying new charters for federally-insured financial institutions. Next, they should set a ceiling on the number of financial institutions significantly below current levels. This target should be aggressively pursued by closing and/or merging institutions that have historically been marginal performers. Finally, imposing a federal income tax on credit unions also will eliminate many poorly performing institutions that exist only because of their federally subsidized cost advantage.

Second, those who monitor financial institutions (accountants, auditors, and regulators) must reaffirm their responsibility to the investing public. Financial watchdogs must think more strategically and recognize that an over-banked industry leads to poor banking decisions and greater risks.

Tags: Accounting, Banking, Economic Crisis, Ketz
Posted in News | 22 Comments