Socially responsible product-positioning: Impact of halo/horns spillover on product image

Offering socially responsible products can increase the consumers’ willingness-to-pay a premium for the item, have a positive or negative spillover effect on the consumers’ perceived product image, increase the item's production and marketing costs, enable sales in new market segments and elicit market response from rivals. Earlier research assumes that when a socially responsible product is offered, consumers’ perception of its conventional (i.e., non-socially responsible) attributes remain unchanged. However, anecdotal and empirical evidence suggests that in addition to societal benefits, offering a socially responsible product can have spillover effects on consumers’ perceptions of the product's conventional characteristics and subsequently, its product image. We propose and analyze an economic equilibrium duopoly model where firms compete on price and products differentiated by their socially responsible attributes and conventional product image. Our model provides new insights into product-positioning and how failing to consider the interaction between socially responsible product offerings and spillover effects on product image can lead to suboptimal product-positioning decisions. Specifically, offering a socially responsible product can have a halo spillover effect on product image, but result in a profit loss for the firm. Furthermore, a high incremental cost of providing the socially responsible product and a large hardcore market segment can lead to a quasi-monopoly market structure where the firms earn their highest profits, if one provides the standard and the other the socially responsible product.