You often see people saying things such as ‘can’t they just stick to business?’ You even see claims that business will be more successful if they just cut out the politics. But is this correct? Can political advocacy be profitable?
Corporate Political Advocacy And Negativity Bias
Corporate Political Advocacy (CPA) is when a firm takes a public stance on a contentious issue, e.g., Black Lives Matter or whatever Elon Musk is doing today with European neo-Nazis. Some consumers will support you and others will not. By its nature CPA appeals to some but annoys others.
A challenge for firms getting involved in politics is negativity bias. This is the common observation that those who like a stance react less dramatically than those who don’t like it. When you support a cause that they favor consumers in that group will say “that’s nice, maybe I’ll consider that at my next purchase”. When you oppose their cause, they scream and shout and vow never to buy again.
If negativity bias was the only thing happening in the world, then the story would be as simple as some seem to think it is. Instead, business is more complex than that as Chris Hydock and his colleagues detailed in a 2020 Journal of Marketing Research paper.
Opportunity Matters
A key point that the authors make is that all firms aren’t starting at the same spot. If a firm controls a large swathe of the market its controversial stance can’t bring in many new customers, but it can lose a lot. The opposite is largely true for smaller firms. They haven’t got many customers to lose but they have a lot of potential customers to gain. Even with negativity bias the smaller firm can benefit from taking a stance providing at least a decent number of the potential customer base value that stance.
…our findings indicate that when a brand’s customers are politically heterogeneous [views differ], engaging in CPA is likely to benefit small-share brands and harm large-share brands.
Hydock, Paharia, and Blair, 2020, page 1149
The basic idea is a simple one but it is important. The effects of what you do depend on where you are starting from and the type of business you are in. Some businesses (those than heavily reward scale) need all the customers to support them to be successful, they can’t afford to alienate any customers. That isn’t true for some other businesses where you can have a great business with the support of a minority in the market.
Profitable Corporate Political Advocacy (CPA)
There are many ways the advocacy can be profitable. Maybe the advocacy gets you attention you wouldn’t get without the stance. Maybe many more potential customers support your stance than oppose it. Some stances appeal to the right target market, e.g., it works for young people and that’s who you want. It could even be that the stance is an investment in the future as the world is moving in that direction and you’ll eventually be rewarded for your advanced views. Maybe you craft a message cleverly to get over the negativity bias while maintaining support. Business is complex. A single behavioral effect like negativity bias, even if robust, is never going to be all you need to know to explain the world.
So, Can Political Advocacy Be Profitable?
Of course it can. You’d have to know absolutely nothing about business to claim otherwise. If a strategy was always successful or always not successful then business would be a lot easier than it is. But no strategy, or lack of strategy, is always best. ‘It depends’ is typically the right answer to any question.
Note this is not the same as saying political advocacy by a firm will always be profitable. Often political advocacy simply won’t be good for business. A challenge for managers and researchers is to understand when CPA will make money and when it won’t.
Even that isn’t the final word. Some things might be seen as necessary – they are an ethical not a business choice. Still, it is good to know whether a stance can be justified on financial grounds. Such stances are a lot easier to persuade the entire firm to get behind.
For more on firms getting involved in contentious social issues see here, here and here
Read: Chris Hydock, Neeru Paharia, & Sean Blair (2020). Should Your Brand Pick a Side? How Market Share Determines the Impact of Corporate Political Advocacy. Journal of Marketing Research, 57(6), 1135–1151.
