Research on the Strategy and Social Effect of Firm’s Public Welfare

Marketing

Lei Wang

School of Economics Shandong University, Jinan, Shandong, China

Keywords: Public Welfare Marketing, The Proportion Of Income Donation, Product Quality, Firm’s Strategy, Social

Effect.

Abstract: Since the outbreak of covid-19, the public welfare marketing has been more and more extensive. In view of

this, we first establish a theoretical model to study whether two firms producing different quality products

participate in public welfare marketing and how to maximize the total donation. Firstly, whether a firm

participates in public welfare marketing depends on both the product quality and the proportion of income

donation; secondly, public welfare marketing may increase corporate profits and will certainly improve social

welfare; thirdly, in order to maximize the total donation, the optimal donation proportion must be a small

value. Then, we empirically test our theoretical prediction by capturing the marketing data of solid state in T-

mall. Based on research conclusions, we propose several suggestions for firms, government and public welfare

organizations in the end.

1 INTRODUCTION

In January 2020, the covid-19 spread rapidly in our

country. Hubei, as the hardest-hit area of the

epidemic, is in high shortage of medical resources.

For this reason, many firms have generously donated

money and materials. In addition to direct donations,

a lot of firms also raise funds for the affected areas by

public welfare marketing. For example, on February

6th, 2020, Shiseido Group launched the "Relay of

Love Project", setting 1% of Asia's marketing

(estimated to be RMB 130 million) as a charity fund

to provide material support to Wuhan. On February

10th, the IT training company Source Code Era

launched a public welfare course, and donated

income to fight the covid-19. On February 13th, the

China Headquarters of the American Serta Group

launched the "Surta Angels in Action" charity

marketing plan and donated 1,842,004 yuan to the

Wuhan Charity Federation.

Although public welfare marketing is very

common, especially in the event of major

emergencies, there are three academic problems that

are not clear: first, when there are differences in

product quality, are firms willing to participate in

public welfare marketing? On the one hand,

participating in public welfare marketing can

improve the corporate image and improve consumers'

brand recognition, which helps to improve product

pricing power and corporate profits. On the other

hand, participating in public welfare marketing

means that part of the marketing revenue must be

donated, which means the loss of profits. Therefore,

when there are differences in product quality, it is

difficult to predict the positive and negative impact of

participating in public welfare marketing on firm

profits. Second, how does public welfare marketing

affect social welfare? This issue is directly related to

whether the government should advocate public

welfare marketing. Third, in order to maximize the

total public welfare donation, how to set the optimal

proportion of income donation? This problem not

only directly affects the willingness of firms to

participate in public welfare marketing, but also

indirectly affects the amount of donations finally

raised, thus affecting the degree of assistance to

donors, and even the degree of prevention and control

of major disasters.

Our research is closely related to the literature in

the field of public welfare marketing. The existing

literature is mainly divided into three categories. The

first kind of literature studies the impact of public

welfare marketing on consumer behavior, and finds

that consumers prefer to choose products for public

welfare marketing, and the corporate image (Barone,

Wang, L.

Research on the Strategy and Social Effect of Firm’s Public Welfare Marketing.

DOI: 10.5220/0011162300003440

In Proceedings of the International Conference on Big Data Economy and Digital Management (BDEDM 2022), pages 105-110

ISBN: 978-989-758-593-7

105

et al, 2000), consumer characteristics (Grau, Folse,

2007), the correlation between products and public

welfare matters (Pracejus, Olsen, 1992) will affect

consumers' purchase decisions. The second kind of

literature studies the impact of public welfare

marketing on public welfare organizations and

participating firms. Although public welfare

organizations can raise money, they may lose their

reputation due to bad brands (Andreasen 1996), and

participating firms may increase their income due to

public welfare marketing (Lafferty, Goldsmith,

2005). The third kind of literature focuses on the

strategy of public welfare marketing. Arora and

Henderson (Henderson, 2007) compared the

promotion effects of public welfare marketing,

discounts and return of commissions. Pracejus et al.

(Pracejus, et al, 2003) studied whether public welfare

donation should be in the form of donation amount or

donation proportion, Krishna and Rajan (Krishna,

Rajan, 2009) studied how firms should choose

products for public welfare marketing. Although the

existing literature is of great reference value, these

documents don’t consider the quality differences

between firm products, so they do not consider the

impact of product quality on firms' willingness to

participate in public welfare marketing and their

profits, and it is impossible to analyze how product

quality affects the social welfare effect of public

welfare marketing, which is the focus of this paper.

Therefore, compared with the existing literature,

this paper may have three contributions: first, we

build a duopoly competition model with different

product quality, and compare the profit changes

before and after firms participate in public welfare

marketing. Our research conclusions can provide

decision-making basis for firms to participate in

public welfare marketing. Second, we calculated and

compared the total amount of public welfare

donations and the corresponding social welfare level

under different conditions, and analyzed the impact

of public welfare marketing and donation proportion

on the total amount of donations and social welfare.

Our research conclusion can not only provide a

theoretical basis for public welfare organization

departments to set the optimal donation proportion, it

can also provide reference for government

departments to encourage public welfare marketing.

Thirdly, we also captured the marketing data of solid-

state drives (abbreviated as SSD in the

following part)

in Tmall and empirically tested the relationship

between public welfare marketing and product

quality found in our theoretical analysis. These

conclusions can provide empirical evidence for

encouraging public welfare marketing during major

public health and safety events in China, and have

better policy implications and practical

enlightenment.

2 THEORETICAL MODEL

Suppose there are two firms competing for output in

the market - firm 1 and firm 2, which produce product

1 and product 2 respectively, and the quality of the

two products is 1 and

1s >

. In order to simplify the

analysis, we assume that the marginal cost and fixed

cost of the two firms are zero. If the firm

does not

participate in public welfare marketing, the

consumer's evaluation of its product is the quality

level of the product; If firms

participate in public

welfare marketing, consumers' evaluation of the

quality of their products will increase due to the

enhancement of consumers' emotional identity,

which is denoted as

()

0ΔΔ>

. However, firms

need to donate part of their marketing revenue to

public welfare undertakings according to the income

donation proportion

set in advance by public

welfare organizations or public welfare sponsors.

Assuming

is relatively small, this hypothesis one

is to ensure that when only low-quality products

participate in public welfare marketing, their overall

quality evaluation is lower than that of high-quality

products, that is, to meet

+Δ<

; the second is to

ensure that when only high-quality products

participate in public welfare marketing, low-quality

products will not be squeezed out of the market. The

consumer's utility function is

Usp

=−

represents the preference parameter of consumers for

the product, which is evenly distributed in

[0,1]

represents the consumer's evaluation or

"confirmation" of product quality.

The sequence of the problem as follows: in the

first stage, two firms simultaneously choose whether

to participate in charity marketing and compete for

output; in the second stage, consumers determine the

quality of the product after observing whether the

company is conducting charity marketing. And

decide whether to buy products and which products

to buy. We use backwards induction to solve the

equilibrium of the problem.

When neither firm carries out public welfare

marketing, we can get the output, price and profit of

the firm by solving the problem of profit

maximization.

BDEDM 2022 - The International Conference on Big Data Economy and Digital Management

106

−

()

−

()

−

()

−

When firm 1 carries out public welfare marketing,

we can get the output, price and profit of the firm by

solving the problem of profit maximization.

−−Δ

()

+Δ

−−Δ

()

−−Δ

()( )

()

−+Δ

−−Δ

()

−+

−

−Δ

When firm 2 carries out public welfare marketing,

we can get the output, price and profit of the firm by

solving the problem of profit maximization.

441

+Δ

+Δ−

441

221

+Δ

−

Δ−

441

+Δ

+Δ−

()( )

221

441

+Δ + Δ−

+Δ−

()

441

+Δ

+Δ−

()

()( )

()

221

441

+Δ + Δ−

=−

+Δ−

When both firms carry out public welfare

marketing,

we can get the output, price and profit of

the firm by solving the problem of profit

maximization.

431

+Δ

+Δ−

431

+Δ−

()()

431

+Δ +Δ

+Δ−

()( )

431

+Δ + −

Δ−

()

()( )

()

431

+Δ +Δ

=−

+Δ−

()

()( )

()

431

+Δ +Δ−

=−

+Δ−

Proposition 1: Under equilibrium conditions,

whether the two firms carry out public welfare

marketing is related to the proportion of revenue

donation. Specifically, there are three critical points

and

,which satisfy

***

123

01rrr<<<<

(1) if

(0, ]rr∈

, both firms carry out public

welfare marketing;

(2) if

(, ]rrr∈

, firm 2 carries out public welfare

marketing;

(3) if

(, ]rrr∈

, firm 1 carries out public welfare

marketing;

(4) if

(,1]rr∈

, neither firm carries out public

welfare marketing.

Proposition 1 has two implications: first, in order

to encourage both firms to participate in public

welfare marketing, the donation proportion must be

set relatively small, that is

(0, ]rr∈

; Otherwise, If

the donation ratio is high (more than

), at least one

firm does not participate in public welfare marketing,

or even two firms do not participate in public welfare

marketing. Second, the willingness of firms to

participate in public welfare marketing depends on

both the proportion of revenue donation and the

quality of their products. Therefore, we get a

theoretical conclusion to be empirically tested: if the

proportion of donation is low, the higher the quality

of products, the more willing they are to carry out

public welfare marketing; however, if the proportion

of donation is high, the lower the quality of products,

the more willing they are to carry out public welfare

marketing.

Proposition 2: Compared with not participating

in public welfare marketing, the profits of firms

participating in public welfare marketing may

increase or decrease.

Specifically, there are two

critical values



and



,which satisfy

121

0 rr r<<<



(1) If

(0, ]rr∈

, both firms participate in public

welfare marketing, there may be three situations

about the profits of the firms compared with the both

firms do not participate in public welfare marketing:

(0, ]rr∈



, the profits of both firms increased; if

(, ]rrr∈



, the profit of firm 1 increased and the

profit of firm 2 decreased; if

(, ]rrr∈

 , the profits

of both firms decreased.

(2)

(, ]rrr∈

, compared with the two firms

that do not participate in public welfare marketing,

the profits of firms that participate in public welfare

marketing increase and the profits of firms that do not

participate in public welfare marketing decrease.

Comparing the total social welfare in four

situations, we draw the following conclusions.

Proposition 3: Compared with the two firms that

do not carry out public welfare marketing, public

Research on the Strategy and Social Effect of Firm’s Public Welfare Marketing

107

welfare marketing improves social welfare, and the

social welfare is the largest when both firms carry out

public welfare marketing.

From the perspective of firms, it can be seen from

proposition 2 that compared with not participating in

public welfare marketing, the profits of firms

participating in public welfare marketing may

increase or decrease, but the profits of firms are only

part of the gross income of the industry, and the other

part of the gross income of the industry is public

welfare donation. Because social welfare includes

two parts, namely, industry gross income and

consumer surplus, our analysis shows that public

welfare marketing increase the gross income of the

whole industry and consumer surplus due to

enhancing consumers' "identity", so public welfare

marketing improve social welfare; Moreover, when

both firms carry out public welfare marketing, the

social welfare reaches the maximum.

3 EMPIRICAL TEST

3.1 Materials and Methods

In the empirical test, we chose SSD as the research

object mainly based on two reasons: firstly, because

the horizontal difference of SSD samples is small, we

can try to avoid the interference of other factors other

than product quality; secondly, because products of

SSD are relatively simple, there are clear indicators

to measure the quality difference between samples.

Since the indicators such as commodity quality and

whether commodities participate in public welfare

marketing are less affected by time changes, we

conduct an empirical study using the SSD data of

Tmall, and capture product information through data

capture software. Due to the failure of commodity ID

and the fact that a single commodity ID corresponds

to multiple commodities, we obtained 400 valid

samples through manual screening.

We take whether the product participates in public

welfare marketing (denoted as y) as the explained

variable. The explained variable is a virtual variable.

If the firm carries out public welfare marketing, it is

recorded as 1, otherwise it is recorded as 0. The core

explanatory variable we choose is product quality.

For SSD, the larger the space, the more data can be

stored, so the hard disk space is an important indicator

of their quality, that is, the higher the quality of SSD,

the larger space it has. The threshold variable is the

proportion of public welfare donations, and the

control variables include monthly marketing,

popularity, cumulative reviews and price, service,

logistics, description and rank.

The hypothesis we want to test is that if the

proportion of public welfare donations is low, the

higher the quality of products, the more willing they

are to carry out public welfare marketing; if the

proportion of public welfare donations is high, the

lower the quality of products, the more willing to

carry out public welfare marketing. Therefore, we use

threshold regression model for empirical research.

The regression equation is as follows:

()

Quality I r

ββ γ

=+⋅ ⋅ ≤

−

()

23i

Quality I r X

βγβ

+⋅ ⋅ > + +

Where,

represents threshold variable,

represents unknown threshold value,

()

I ⋅

represents

index function,

represents control variable and

represents random disturbance term.

3.2 Results & Discussion

The regression results of sample data are shown in

Table 3. It can be seen from table 1 that when the

proportion of public welfare donation is less than or

equal to 0.0266667%, the higher the quality of

products, the more willing they are to carry out public

welfare marketing; When the proportion of public

welfare donation is greater than 0.0266667%, the

lower the quality of products, the more willing they

are to carry out public welfare marketing. The

regression results can verify our previous theoretical

expectations. In terms of control variables, the price

and logistics scores are significant before and after

the threshold, specifically: (1) When the proportion

of public welfare donation is low, the products with

lower price are more willing to carry out public

welfare marketing; when the proportion of public

welfare donation is high, the products with higher

price are more willing to carry out public welfare

marketing. The reason is that under other conditions,

low price means that the profit space of products is

small. If the proportion of donation is too high, it is

not conducive to the profit maximization goal of low-

cost products When the proportion of profit donation

is low, low-price products are willing to participate in

public welfare marketing; (2) Products with low

logistics scores are more willing to demonstrate their

product quality through public welfare marketing.

When the proportion of public welfare donations

increases, products with lower logistics scores are

more willing to participate in public welfare

marketing. The reason is that under other conditions,

BDEDM 2022 - The International Conference on Big Data Economy and Digital Management

108

consumers are less likely to choose products with low

logistics scores, and public welfare marketing helps

to improve consumers' evaluation of products.

Therefore, products with low logistics scores are

more willing to participate in public welfare

marketing.

Table 1: Results of regression.

threshold value

0.0266667%

≤

Quality

0.000139576***

（3.005）

-0.000463083*

（-1.8017）

Price

-0.000053497**

（-1.968）

0.000354339***

（3.976）

Marketing

-0.000034391

（-0.652）

0.006452529***

（-3.938）

Review

0.0000048187

（0.4534）

-0.001450056

（-1.3232）

Popularity

-0.0000032302

（-0.3761）

0.000150267

（1.2034）

Description

0.504443912

（0.9623）

0.692010066

（0.693）

Service

0.586749092

（1.292）

-1.32822055

（-0.6409）

Logistics

-1.16531424**

（-2.4667）

-5.70283681**

（-2.8019）

Rank

0.000017266

（0.0947）

-.000942945**

（-2.0036）

Note: ***, **, * respectively represents significant at 1%,

5% and 10% significant levels; the values in parentheses

are Z statistics.

4 CONCLUSIONS

Our study finds that whether a firm participates in

public welfare marketing depends on both the product

quality and the proportion of income donation; public

welfare marketing may increase the profits of firms

and will certainly improve social welfare; in order to

maximize the total donation, the optimal donation

proportion must be a relatively small value. The

conclusions have some policy implications. Firstly,

firms should actively formulate public welfare

marketing strategies according to their product

quality. Specifically, in order to achieve the double

"harvest" of corporate reputation and corporate

profits, firms selling high-quality products should try

to choose public welfare projects with a low donation

proportion; however, firms selling low-quality

products should try to choose public welfare projects

with a high proportion of donations. Secondly, public

welfare marketing can not only benefit industry

profits and public welfare undertakings as a whole,

but also increase consumer surplus, so as to improve

social welfare. Moreover, if the proportion of income

donation can be set appropriately, it can meet the

multi-objective requirements of firms, public welfare,

consumers and social welfare at the same time, and

engage in a win-win situation. Thus, government

departments should vigorously advocate public

welfare marketing, especially in the current situation

of fighting with covid-19. Finally, for public welfare

organizations, in the critical period of epidemic

prevention, the goal can be adjusted to maximize

public welfare donations, and an appropriate donation

proportion can be set to encourage more firms to

participate in public welfare marketing, so as to better

integrate public welfare forces and contribute to the

epidemic stricken areas. With the gradual

improvement of the epidemic situation, public

welfare organizations should fully consider the

interests of firms and appropriately reduce the

donation proportion, so as to achieve a win-win

situation between public welfare undertakings and

firm profits.

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Research on the Strategy and Social Effect of Firm’s Public Welfare Marketing

109

APPENDIX

22 2 3

22223

16 32 16

1 8 16 7 24 16 8 32 16

ss s s s

−Δ + Δ − Δ + Δ + Δ

−+ −Δ+ Δ+ Δ+Δ+ Δ+Δ

()

() ( )( )

(

)

() ()

()

43 2 2 2 3

64 64 1 1 4 10 7 4 2 3

18 2 3

ss s s

sss

Δ + Δ− + Δ − − Δ+Δ − − −Δ+ Δ

+Δ + + Δ− −Δ

()

()( )

16 1

114

Δ−Δ−

+Δ −

()()

2342 233

2345 2342 233

1 8 24 40 32 2 12 36 44

12 52 96 64 1 14 72 160 128 2 21 72 80

ss s s ss s a

ssss ss s s sss a

Δ− + − + +Δ−+ − + +Δ

− + − + +Δ − + − + +Δ − + − + +Δ



()( )

()()

242 233

23 4 2 3 4 2 3 3

29 16 169 32

8 16 2 15 24 16 1 6 32

ss s ss s a

ss ss ss ss a

Δ−+ +Δ−−+ +Δ

−+ +Δ− + + +Δ−+ +Δ



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