Cause & Effect
[Reprinted from Perspectives Spring 2012]
You might not be familiar with the term “cause-related marketing,” but if you’ve ever worn a LIVESTRONG bracelet, bought a pair of TOMS shoes, collected cereal box tops, purchased a paper shamrock at a Walgreen’s cash register, collected pink Yoplait yogurt lids, or dropped a toy in a Toys ‘R Us Toys for Tots bin, you’ve participated in cause marketing.
Now the fastest-growing category of corporate sponsorship spending, cause marketing is a powerful business strategy for both corporations and non-profit organizations—with companies spending millions of dollars on cause-related campaigns and charities collecting millions from these partnerships.
It all started in 1983 when American Express launched a campaign aimed at helping to restore the Statue of Liberty and Ellis Island. American Express guaranteed to donate 1 cent for every credit card transaction and $1 for every new card issued during the last quarter of 1983. Not only did the company collect nearly $2 million that it was able to contribute to the restoration effort of the American landmark, but American Express put itself on the map as well, generating extensive positive publicity and realizing a 17 percent increase in the number of credit cards and a 28 percent jump in the use of those cards.
The success of that first cause marketing campaign turned a lot of corporate heads, and within a decade U.S. businesses and non-profits had widely embraced the concept. Cause marketing quickly began replacing “corporate charity,” which was becoming largely viewed by companies and their shareholders as an expense that had few tangible benefits. In contrast, the efforts of American Express and other early adopters of cause marketing proved that businesses could make those donations, incur those expenses, and get something in return. A more strategic form of philanthropy was born.
Ties That Bind
Since 1990, when the amount of money spent by corporations on cause marketing campaigns stood at about $125 million, the outlay by corporations has increased significantly, reaching more than $1.5 billion in 2010. With thousands of companies, large and small, raising millions for national and international charities, these partnerships have exploded in the marketplace. And why not? After all, these alliances not only raise awareness of and cash for non-profits, they also create exceptional public relations opportunities for companies, establish them as philanthropic citizens, and, unlike earlier corporate charity efforts, actually help sell products and services.
General Mills, for instance, created the “Save Lids for Lives” campaign, producing special Yoplait yogurt containers prominently displaying the pink breast cancer awareness ribbon. For the last several years, General Mills has contributed 10 cents for each lid returned to the company to the Susan G. Komen Breast Cancer Foundation. Since the campaign began, more than $25 million has been donated by General Mills. That’s a lot of money for breast cancer research and a lot of yogurt sales.
It’s a partnership that has synergy: a product whose target demographic is largely health-conscious women aligned with a nonprofit concerned with women’s health. According to Tiffany White, associate professor of business administration, that synergy is key to a successful relationship.
“When companies engage in this kind of marketing effort, it signals to customers that in addition to their interest in profits, businesses also have a benevolent interest, that they have charitable, sharing intentions over and above making money,” says the Bruce and Anne Strom Faculty Fellow. “And when the company aligns itself with a cause that is related to their business and appeals to their target audience, it’s a winning formula.”
That certainly is true for the alliance between the Lance Armstrong Foundation and Nike, who in 2004 produced the yellow rubber LIVESTRONG bracelet. Each bracelet sold for $1, and all proceeds went to the foundation for cancer research. As an athlete, Lance Armstrong’s partnership with a sports apparel giant was a fit that resonated with consumers. But wearing the bracelet became more than a nod to the cause, it took on a life of its own, becoming a popular fashion statement as well. That success morphed into an entire line of merchandise that carries both the LIVESTRONG name and the Nike brand “swoosh.” To date, that partnership has raised more than $80 million for the cause.
But the donation doesn’t have to be that big or the product that trendy to win over consumers. White cites the positive consumer response to efforts such as Target’s Take Charge of Education Program, which funds educational programs of the customer’s choosing, and Panera’s Operation Dough Nation, which includes creating easy ways for customers to donate change to the local hunger effort as well as Panera’s donation of day-old food products to local agencies that serve the hungry.
“This complementary package of a smart corporate mind and a good corporate heart appeals to consumers and differentiates the business from the competition,” White explains.
Cause-marketing efforts that don’t have such a strong and sincere tie between the business and the charity, on the other hand, may find themselves the unwitting recipient of consumer backlash, no matter how generous the company’s intentions. That’s what happened in 2010 when Kentucky Fried Chicken launched its Buckets for the Cure campaign, changing its traditional red buckets to pink and donating 50 cents to the Susan G. Komen Foundation for every bucket sold. Though $1.9 million was raised in the first week alone, a lot of feathers were ruffled over what many thought was an ill-advised partnership between a company that sells deep-fried fast food and a cause for which there is a link between excess body fat and low survival rates. In some camps, the negative publicity for both the company and the non-profit was louder than the positive impact of the donation and lingered long after the campaign ended.
“Such efforts have the potential to shed a bad light on both the company and the non-profit and make them both seem opportunistic,” says White.
Partnerships that fall flat are definitely in the minority, and the substantial benefits of successful partnerships keep businesses keen on the concept. Not only can cause-marketing efforts generate extensive goodwill and publicity, help differentiate a company from its competitors, and increase sales, they can also further the relationship with the customer.
“Such efforts appeal to consumers in a way that’s meaningful to them, and it’s much more of a collaborative effort with a more positive outcome,” says White. “Customers are enthusiastic about spending money at a business that shows they understand who their customers are and what they value. It helps build brand loyalty and trust and long-term, resilient relationships with customers. It validates their decision making and enhances the brand.”
Inger Stole, associate professor of communication, agrees. “When a company creates an emotional connection between its brand and the consumer, they are forging a relationship,” she says. “Those that can sustain that connection rise to the top. Cause marketing suggested itself as a way to build that relationship by promising to fulfill more objectives than just supplying a product. It says that as a business we understand that Americans stand for more than shoes, or cigarettes, or cereal. That’s why the American Express campaign was so brilliant. Who can argue with the concepts behind the Statue of Liberty?”
Overexposed? With relatively few risks and so many benefits for the business and the non-profit, and the feel-good connection for the consumer, isn’t everyone a winner when it comes to cause marketing?
In many ways, yes, say experts. But that doesn’t mean there aren’t pitfalls.
Stole, for instance, shares concerns that the practice of hinging important issues such as health care and education on the whims of marketing trends is problematic.
“We must ask ourselves if the emerging system of cause marketing and commercially driven philanthropy is the best and most sustainable way for society to address fundamental social issues,” she says.
As a communications expert, Stole is convinced that “from the corporation’s standpoint, there’s no doubt that cause marketing is an effective branding strategy,” but as a citizen, she’s concerned that “it makes the public feel that charities are well taken care of, and that’s just not the case.”
With corporations eager to support charities such as Susan G. Komen, Habitat for Humanity, and St. Jude’s Children’s Hospital, just to name a few, Stole says many smaller and less-popular causes find themselves struggling to raise funds. They want a piece of the corporate pie and spend a great deal of time and effort trying to determine how best to leverage their cause to marketers. And when that doesn’t pan out, Stole says, these non-profits find themselves appealing to a public that may be less inclined to write a check because the sheer volume of cause marketing efforts, and their participation in those campaigns, make consumers feel they are doing their part.
The large number of cause marketing efforts and the public’s constant exposure to them can also be a reason for backlash. Consumers may feel overwhelmed by the appeals being made to them, no matter how important the causes, which may cause them to feel less generous and more suspect. Facilitated giving provides such an example, says Stole. This branch of cause marketing, which has been taken up by gas stations, drug stores, or other convenience shops, solicits small donations for popular causes at the cash register.
“People begin to ask, ‘How do I know that my donation is actually going to that cause,’” says Stole. Then there’s the fact that all those donations taken together become a contribution that has the gas station or drug store’s name attached to it, instead of the consumers who actually opened up their wallets. Add to that the angst that some consumers feel about being put on the spot to donate or explain themselves and you have a recipe for resentment.
An additional concern for the nonprofit and the corporate partner is what White describes as “co-branding contagion,” which is the association of one brand with another by virtue of its affiliation with the same organization, in this case, the non-profit. For instance, says White, a charity could lose the sponsorship of one partner by forging a relationship with a second corporation that the first does not want to be linked with.
“When companies sponsor important causes, consumers make attributions between the cause and the brand and all the cause’s partners, so brands always need to be mindful of what their actions and their associations with other brands signal to customers,” says White. There can be backlash if one company, for instance, has a reputation that by association “contaminates” the other. “If the consumer has to stop and calculate the mental math of the brands’ relationship with each other and it doesn’t add up in their mind, it can be detrimental to the brand and the cause.”
Terri Helge, professor at Texas Wesleyan University School of Law, explains that there is an even more nebulous problem for the non-profit— and that’s the potential tax implications of such partnerships. “Despite the widespread success of cause-related marketing, the IRS has issued little guidance on acceptable practices by charitable organizations engaged in cause-related marketing,” she says. “This leaves the non-profits vulnerable to questions about their tax-exemption status.”
What does the future hold for cause marketing and the landscape of nonprofit fundraising? “Social media will be increasingly used to facilitate cause marketing,” says White, “but it can be a slippery slope. When social media efforts are well done, they can be great assets, but they also have the potential to grow and go in the wrong direction and become hybrids of themselves, so it’s very important that they are strategically managed.”
Stole says the arena is likely to become even more elaborate. “I see much more use of social media to generate excitement about cause-related campaigns and more viral marketing beyond the purchase-triggered model. It’s too valuable a strategy for corporations to abandon it, but they have to renew and refresh their approaches, so that they continue to engage the consumer.”
For non-profits, the evolution from corporate sponsorship to cause-related marketing has the potential to create tax challenges. Why would a charity have tax implications for money that is being donated to their cause?
Terri Helge, professor at Texas Wesleyan University School of Law and a 1994 ILLINOIS graduate in accountancy, says the issue is how cause marketing can blur the lines between non-profit and for-profit activities.
“Corporations have historically invested marketing dollars in furthering community causes, with the residual effect of building the corporation’s goodwill,” she says. “But when the for-profit corporation also receives, in return for its support of the charity, the right to use the name or logo of the charity to directly affect the sale of the corporation’s product,” that can raise questions about the appropriate tax treatment for the charity.
“Cause marketing is on the IRS radar screen, and I would hate for charities to get caught because they were unaware. From the corporate side, there really isn’t much
risk tax-wise because the money they’re spending generally is a proper business deduction. It really is falling on the charity to be sure they are complying with the laws.”
Helge’s motivation for researching this topic stems from her time working with non-profits first as an accountant and now examining it from the legal aspect. “I saw that smaller charities were looking at cause marketing as an innovative way to raise funds without asking for more checks or doing an active fundraising campaign. They saw that larger charities were having a lot of success, and they wanted to take advantage of that opportunity, too. However, unlike their larger counterparts, these charities often don’t have the benefit of legal advice, and since there is no clear guidance from the IRS, this leaves them vulnerable.”
Tax exemption for charities is based on the fact that the services they provide are different from those of the for-profit sector. “When the lines between charitable activity and for-profit activity cross, the justification for special tax treatment for the charity weakens,” says Helge. “The question may be what are the sources of the
income that the charity is receiving. If the corporation is paying for the right to use the charity’s name to sell its product, is this considered a passive royalty of the charity’s mark or name or is it considered an endorsement by the charity, which then is considered advertising and may be subject to tax.”
Helge also explains that for a charity to be tax exempt it must provide a public benefit and can provide no more than an incidental private benefit, a vague concept that leaves room for wide interpretation.
“The IRS is supportive of charities, but they are aware that some charities are not complying with the rules to maintain tax exemption. They are trying to determine what is going on in the non-profit sector.” She says the Congressional Budget Office has even issued a report on unrelated business income tax (UBIT) suggesting a more aggressive approach to investigating charities that may not be adhering to tax regulations regarding UBIT.
Helge calls for the IRS to provide more guidance for charities on these issues, as the matter will only become more complicated as cause-marketing initiatives grow more successful and more widespread.
“A revenue ruling or Treasury regulation setting forth safe harbor provisions for permitted cause-related marketing alliances would be mutually beneficial because it would reduce the administrative burden on the IRS of examining these arrangements on a case-by-case basis, and it would allow charities to more easily comply with the law,” explains Helge. “In particular, smaller charities that cannot readily afford legal counsel to assist them in structuring complex licensing transactions would benefit.”