Tuesday, July 20, 2010

Where Charity Meets Profit

The Dirty South Improv Theater, where I perform and teach, is well known for supporting the local community of Carrboro-Chapel Hill. From the annual Y Laugh fundraising campaign to special shows for non-profits like a used-bicycle collective and a youth mentor-advocate program. For all of this month, 20% of the ticket sales will go to the local Boys and Girls Club. The reason behind any business doing this is two fold: 1) as a form of advertising and brand image, 2) support causes the boss feels are worthwhile.

I've always questioned both of those motivations. The first feels like a deceptive way to convince the public your product is valuable. For example BP recently announced it would donate any revenues from collected oil in the Gulf to the National Fish and Wildlife Foundation. Any energy spent making it seem like your company is good, is energy not spent actually making your company good. The second motivation also makes me uncomfortable because if the bosses want to donate money, they should pay themselves more and do it. Why involve the company, the employees, and the stock holders?

My question was recently answered when Tyler Cowen shared an interesting research finding. When customers at an amusement park were asked to buy pictures of themselves on a roller coaster only 0.5% paid the $12.95 asking price. Next they allowed customers to pay what they wanted. Sales went up to 8.4%, but the average payment was only $0.92. Later they were told that half of the $12.95 went to charity. This barely changed the amount of payers. Finally, the two ideas were put together. Customers could pay what they wanted, but half would go to charity. Suddenly, 4.5% of the customers bought a photo, nine times the original number, each paying an average of $5.33.

Charitable donations increased and so did profits. Not counting any loss due to consumer guilt, it was a net gain for all. Businesses made more and looked good doing it. Charities got more and people felt better giving it. This also allows the boss to give to his desired charity with a positive impact on his company. Until I can convince theater owner Zach Ward to change the pricing, you can still go see shows all this month and donate any extra at the door. This weekend marks the end of our two special sketch shows, Harvey Wallbanger and We Need A Hero.

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