News / Economy

New Business Model Redefines Giving, Profit

Two children share food at a Buenos Aires soup kitchen after receiving shoes in TOMS
Two children share food at a Buenos Aires soup kitchen after receiving shoes in TOMS "Shoe Drop 2006," which donated the company's first 10,000 pairs of shoes in soup kitchens, schools, and to homeless Guarani Indians in the Northern Argentine jungle (200

An increasingly popular business model lets participating companies give to charity while making a profit. But the approach is blurring the lines between for-profit and not-for-profit organizations and raising questions about the real drivers behind this business model.

One of the balloon rides offered by Great American Days of Atlanta, Georgia (File)
One of the balloon rides offered by Great American Days of Atlanta, Georgia (File)

TOMS Shoes of Santa Monica, California is one of the most prominent businesses to embrace this idea, known as social entrepreneurship.  The company has donated more than one million pairs of shoes for the equivalent sold since September 2010.

And Great American Days, an Atlanta, Georgia company that sells gift packages like hot air balloon rides and white water rafting, donates "as little as a few cents" to "as high as $6,000," depending on the project, said its Marketing Director Jan Stockbridge. “When someone buys an experience from our water category, we donate to projects that build wells and provide fresh water," she explained.

Many donations are made through Buy1Give1 (B1G1), a four-year-old Singapore company that offers more than 650 charitable projects in 29 countries to which members can link products or services. Buy1Give1 describes itself as “a social enterprise that supports, inspires and educates businesses globally.” Its Chairman Paul Dunn said B1G1 lets donors know the outcome of their charity.

The company includes B1G1 PTE LTD, or private limited, which deals with marketing and membership, and a separate entity called B1G1 Giving.  “A 100 percent of the funds that go into B1G1 Giving must go to the designated projects or causes … chosen by the members," said Dunn.

Once funding is available for a given project, the company partners with humanitarian and non-governmental organizations to implement it. The fruits of this labor can be seen in western Kenya’s Mama Ann Odede training complex, a project of World Youth International (WYI), a non-profit group that encourages young people to volunteer overseas.

B1G1 founder, Masami Sato (C) holds a goat donated through her company at the World Youth International Mama Ann Odede Complex in western Kenya (File)
B1G1 founder, Masami Sato (C) holds a goat donated through her company at the World Youth International Mama Ann Odede Complex in western Kenya (File)

Fred Mito, WYI In-Country Coordinator and CEO of the complex, said in an email interview that the buy one, give one model has allowed the community to buy goats and to move ahead with plans to upgrade to higher-quality goats. The goal, said Mito, is to create “a cottage industry to produce milk for direct consumption and goat milk by-products [for] sale," bringing "a sense of sustainability” to the community.

Hybrid firms are becoming more commonplace, matching an “enormous growth in the number of people who do both charitable work and business work in ways that are very different than the past,” said Eugene Steuerle of the Urban Institute. They include for-profit firms, non-profits operating a business that conducts charitable activities, non-profits operating private businesses related to their mission, and not for profit firms that are “not charitable in the sense that … they basically keep their profits to zero and do business activities,” Steuerle said.

Marketing charity can do some good in society, although Steuerle cautioned that some charities use charitable activity to advertise themselves. “They’ve obviously got a business model that works, so they’re making money, but they may also … want to give a fair amount of the money,” Steuerle said.

The University of Michigan’s Professor of Marketing Aradhna Krishna agreed that it is a good thing for companies to help charitable causes. But she said, "I don’t think that for many of these companies that is the primary purpose. The primary purpose is to increase market share and to get higher profit. Now, if in doing that they can help the charities - that is fantastic," said Krishna.

Bras hanging across the Hot Metal Bridge over the Monongahela River were part of an October breast Cancer awareness campaign. Aerie, a bra company, had the steel bridge draped in thousands of bras to heighten awareness of breast cancer. The company said i
Bras hanging across the Hot Metal Bridge over the Monongahela River were part of an October breast Cancer awareness campaign. Aerie, a bra company, had the steel bridge draped in thousands of bras to heighten awareness of breast cancer. The company said i

Reasons for donating goods vary. “Often they [i.e., firms] get a charitable deduction and, in some cases, a fairly generous charitable deduction for it,” said Steuerle. “So the net cost to the business can be … fairly small, depending on the size of that deduction.”

The cost of a single manufactured item drops once it is produced in bulk. So a factory that makes an item for $5 apiece for the first few thousand units can ultimately lower the cost per unit to $1 if it stays in business long enough, but continue to claim the larger amount on tax deductions. If the deduction is $5 but it only cost a dollar to produce an item, then Steuerle added that “they’re really giving away a cost and … often it’s somewhere in between."

Customers shop at the Food Project's Farmer's Market in Boston's neighborhood of Dorchester, Massachusetts. Each year, The Food Project hires 60 youths to grow food on their farms, during which these teens harvest and distribute over 60,000 pounds of prod
Customers shop at the Food Project's Farmer's Market in Boston's neighborhood of Dorchester, Massachusetts. Each year, The Food Project hires 60 youths to grow food on their farms, during which these teens harvest and distribute over 60,000 pounds of prod

Consumers should first research the charities they want to help and understand what they’re buying and why they’re buying it, advised Rachel Hutchisson, Director of Corporate Citizenship and Philanthropy at Blackbaud, a software vendor that partners with non-profit groups. “It’s important because there are companies out there that do mislead their customers using [a] charitable kind of messaging, where when you look under the hood a little bit, you can see that the percentage of money going to charity is very, very small,” she said.

“When you’re a consumer, you buy something, you get a product. When you’re a donor, you give money and you get what we call “psychic benefit” – the knowledge that you’re doing good or you’re helping to do something," Hutchisson said. "So these companies are definitely using that charitable part as an incentive to make you purchase and as a differentiator. You know you could go buy shoes from someone else, but if you buy them from TOMS, you know that you’re also going to have a pair of shoes donated. So that makes it a differentiator.”

A 2010 Edelman goodpurpose global study showed that most consumers were more likely to buy a product that supports a charity. Up to 87 percent of Americans surveyed said businesses should put at least equal weight on society’s interests as on their own. And consumers in Brazil, China, India, and Mexico were more likely than Americans to purchase and promote brands that support good causes. South African Nausheena Mahomed echoed this sentiment. “I'm a quick shopper - buy what I like and what I need and if somewhere along the line it’s for a good charitable cause then that's great,” she said in an email interview.

A lot of people give “on an instantaneous type of emotion,” said Steuerle, and might not mind paying a little more for an item attached to a charitable cause. Saundra Schimmelpfennig, Director of Good Intentions are Not Enough, a corporation that helps donors make informed funding decisions agreed that giving back through purchases “helps us with both our cultural needs to have things and also a cultural need to give back.”

But companies that make charity a core part of their business model blur the line between consumer and donor behavior, warned Hutchisson. And Steuerle cautioned that businesspeople often find it hard to separate in their minds profit-making from non-profit activities.

This is one reason why Schimmelpfennig opposed the buy one, give one approach. She said “donated goods are always a questionable form of helping and one that can have lots of unintended consequences,” such as potentially harming local economies, taking away decision-making from recipients or giving goods that are unsuitable for local climates. A better alternative in her mind is to create local jobs or produce and procure materials locally.

But Schimmelpfennig added that in the U.S. in particular, non-profit organizations like World Vision, a Christian humanitarian organization, “use donated goods as a way to increase their administration-to-programs cost ratio,” meaning that the “estimated value” of the goods in the U.S. gets claimed as a program cost, even though the same product could be purchased cheaper locally, Schimmelpfennig explained.

“This inflated value makes the [organization] appear to have a far higher percentage of their costs going to programs. The benefits of this to the non-profit can outweigh questions of the actual impact of the program,” Schimmelpfennig said.

Members of Nicaragua's Buena Vista soccer team, a local soccer team, train after receiving T-shirts with graphics depicting the New England Patriots NFL team as the winners of Super Bowl XLII, in San Gregorio village, south of Managua. The NFL donated the
Members of Nicaragua's Buena Vista soccer team, a local soccer team, train after receiving T-shirts with graphics depicting the New England Patriots NFL team as the winners of Super Bowl XLII, in San Gregorio village, south of Managua. The NFL donated the

It’s not that simple, World Vision responded.  Its Director of Gifts in Kind Carol Wylie said in an email interview that while the value of donated goods, cash and public grants are a factor in calculating overhead rates, that "is not the only or primary measure of effectiveness or efficiency of the organization." World Vision's finance team added in an email interview that Charity Navigator, for example, "has a rating system that uses 7 differen[t] financial performance metrics and 17 accountability and transparency performance metrics.”

It is okay for companies to engage in charitable work, said Hutchisson, so long as it is ethical. As the world changes, she said companies are becoming more marketing-savvy either because consumers like and expect companies to give back or because of what she calls a “generational shift.”

Hutchisson said that her children are hearing from everyone to their priest to the president that they need to give back. “My 13-year old is talking about when he goes to school whether he wants to study so that he can run a non-profit,” she said. “There are kids studying social entrepreneurship … People didn’t get Masters in Philanthropy when I was, you know, going to school. That’s a newer thing. So I think the generational shift is making us more socially-minded.”

You May Like

Australia-Cambodia Resettlement Agreement Raises Concerns

Agreement calls for Cambodia to accept refugees in return for $35 million in aid and reflects Australia’s harder line approach towards asylum seekers and refugees More

India Looks to Become Arms Supplier Instead of Buyer

US hopes India can become alternative to China for countries looking to buy weapons, but experts question growth potential of Indian arms industry More

Earth Day Concert, Rally Draws Thousands in Washington

President Obama also took up the issue Saturday in his weekly address, saying there 'no greater threat to our planet than climate change' More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Are Energy Needs Putting Thailand's Natural Beauty at Risk?i
X
Steve Sandford
April 17, 2015 12:50 AM
Thailand's appetite for more electricity has led to the construction of new dams along the Mekong River to the north and new coal plants near the country's famous beaches in the south. A proposed coal plant in a so-called "green zone" has touched off a debate. VOA's Steve Sandford reports.
Video

Video Are Energy Needs Putting Thailand's Natural Beauty at Risk?

Thailand's appetite for more electricity has led to the construction of new dams along the Mekong River to the north and new coal plants near the country's famous beaches in the south. A proposed coal plant in a so-called "green zone" has touched off a debate. VOA's Steve Sandford reports.
Video

Video Overwhelmed by Migrants, Italy Mulls Military Action to Stabilize Libya

Thousands more migrants have arrived on the southern shores of Italy from North Africa in the past two days. Authorities say they expect the total number of arrivals this year to far exceed previous levels, and the government has said military action in Libya might be necessary to stem the flow. VOA's Henry Ridgwell reports.
Video

Video Putin Accuses Kyiv of ‘Cutting Off’ Eastern Ukraine

Russian President Vladimir Putin, in his annual televised call-in program, again denied there were any Russian troops fighting in Ukraine. He also said the West was trying to ‘contain’ Russia with sanctions. Henry Ridgwell reports on reactions to the president’s four-hour TV appearance.
Video

Video Eye Contact Secures Dog's Place in Human Heart

Dogs serve in the military, work with police and assist the disabled, and have been by our side for thousands of years serving as companions and loyal friends. We love them. They love us in return. VOA’s Rosanne Skirble reports on a new study that looks at the bio-chemical bond that cements that human-canine connection.
Video

Video Ukrainian Volunteers Search for Bodies of Missing Soldiers

As the cease-fire becomes more fragile in eastern Ukraine, a team of volunteer body collectors travels to the small village of Savur Mohyla in the what pro-Russian separatists call the Donetsk Peoples Republic - to retrieve bodies of fallen Ukrainian servicemen from rebel-held territories. Adam Bailes traveled with the team and has this report.
Video

Video Xenophobic Violence Sweeps South Africa

South Africa, long a haven for African immigrants, has been experiencing the worst xenophobic violence in years, with at least five people killed and hundreds displaced in recent weeks. From Johannesburg, VOA’s Anita Powell brings us this report.
Video

Video Sierra Leone President Koroma Bemoans Ebola Impact on Economy

In an interview with VOA's Shaka Ssali on Wednesday, President Ernest Koroma said the outbreak undermined his government’s efforts to boost and restructure the economy after years of civil war.
Video

Video Protester Lands Gyrocopter on Capitol Lawn

A 61-year-old mailman from Florida landed a small aircraft on the Capitol lawn in Washington to bring attention to campaign finance reform and what he says is government corruption. Wednesday's incident was one in a string of security breaches on U.S. government property. Zlatica Hoke reports the gyrocopter landing violated a no-fly zone.
Video

Video Apollo 13, NASA's 'Successful Failure,' Remembered

The Apollo 13 mission in 1970 was supposed to be NASA's third manned trip to the moon, but it became much more. On the flight's 45th anniversary, astronauts and flight directors gathered at Chicago's Adler Planetarium to talk about how the aborted mission changed manned spaceflight and continues to influence space exploration today. VOA’s Kane Farabaugh reports.
Video

Video Badly Burned Ukrainian Boy Bravely Fights Back

A 9-year-old Ukrainian boy has returned to his native country after intensive treatment in the United States for life-threatening burns. Volodia Bubela, burned in a house fire almost a year ago, battled back at a Boston hospital, impressing doctors with his bravery. Faith Lapidus narrates this report from VOA's Tetiana Kharchenko.
Video

Video US Maternity Leave Benefits Much Less Than Many Countries

It was almost 20 years ago that representatives of 189 countries met at a UN conference in Beijing and adopted a plan of action to achieve gender equality around the world. Now, two decades later, the University of California Los Angeles World Policy Analysis Center has issued a report examining what the Beijing Platform for Action has achieved. From Los Angeles, Elizabeth Lee has more.
Video

Video Endangered Hawaiian Birds Get Second Chance

Of the world's nearly 9,900 bird species, 13 percent are threatened with extinction, according to BirdLife International. Among them are two Hawaiian honeycreepers - tiny birds that live in the forest canopy, and, as the name implies, survive on nectar from tropical flowers. Scientists at the San Diego Zoo report they have managed to hatch half a dozen of their chicks in captivity, raising hopes that the birds will flutter back from the brink of extinction. VOA’s George Putic reports.
Video

Video Exhibit Brings Renaissance Master Out of the Shadows

The National Gallery of Art in Washington has raised the curtain on one of the most intriguing painters of the High Renaissance. Mostly ignored after his death in the early 1500s, Italian master Piero di Cosimo is now claiming his place alongside the best-known artists of the period. VOA’s Ardita Dunellari reports.
Video

Video Sidemen to Famous Blues Artists Record Their Own CD

Legendary blues singer BB King was briefly hospitalized last week and the 87-year-old “King of the Blues” may not be touring much anymore. But some of the musicians who have played with him and other blues legends have now released their own CD in an attempt to pass the torch to younger fans... and put their own talents out front as well. VOA’s Greg Flakus has followed this project over the past year and filed this report from Houston.
Video

Video Iran-Saudi Rivalry Is Stoking Conflict in Yemen

Iran has proposed a peace plan to end the conflict in Yemen, but the idea has received little support from regional rivals like Saudi Arabia. They accuse Tehran of backing the Houthi rebels, who have forced Yemen’s president to flee to Riyadh, and have taken over swaths of Yemen. As Henry Ridgwell reports for VOA, analysts say the conflict is being fueled by the Sunni-Shia rivalry between the two regional powers.

VOA Blogs

World Currencies

EUR
USD
0.9247
JPY
USD
118.78
GBP
USD
0.6657
CAD
USD
1.2190
INR
USD
62.395

Rates may not be current.