Tennessee State Seal
Use Caution with Cause-Related Marketing
(Published: December 2, 2009)

(This column was originally published in The (Memphis) Commercial Appeal Nov. 27, 2009.)

Teaming of for-profit companies with nonprofits to sell products, services while raising money for charity sounds fine, says Tre Hargett — but read the fine print.

In difficult financial  times, every dollar counts. Even during the season of giving.

During this holiday shopping season, many people will make purchasing decisions that are influenced by “cause-related marketing.”

In simplest terms, cause-related marketing arrangements are those in which for-profit companies team up with nonprofit organizations to sell products and services while simultaneously raising money for charity.

On its surface, it sounds like a great concept. Why wouldn’t you want to buy a product from a company that is promising to donate a percentage of the sales proceeds to your favorite charity, when you’re planning to buy that product anyway?  Unfortunately, some of these arrangements aren’t exactly what they seem.

During these difficult economic times, it’s not surprising that cause-related marketing is popular. When retail sales are expected to be weak, some stores believe consumers may feel better about spending if there’s a charitable tie-in to their purchases. Many people don’t have time in their busy schedules for volunteer work, so donating to a good cause is a substitute for time spent volunteering.  Moreover, charitable organizations face extra challenges in getting donations when people have less money to spend.

And cause-related marketing works. According to a study conducted last year by Cone, a Boston-based strategy and communications agency, 79 percent of consumers would be willing to switch brands if, price and quality being roughly equal, one brand was associated with a good cause and a competing brand was not.

Unfortunately, with cause-related marketing, you need to read the fine print.  Some deals are structured so a portion of the company’s sales don’t go to charity until certain sales levels are met. For example, if Company X isn’t pledging to donate money to charity unless its sales of Product Y reach $10 million, then a portion of the money you spend on Product Y may or may not make it to its intended charity.

Alternatively, some companies set caps on the amount of money they will donate. In other words, if Company X claims that it will donate a percentage of sales to a charity “up to a $50,000 maximum,” then once that maximum has been met, the intended charitable organization doesn’t benefit further, no matter how many more people purchase Product Y.

In some cases, cause-related marketing arrangements may violate federal or state laws.  The Federal Trade Commission considers it a violation of federal law to advertise products or services in ways that are that are misleading or deceptive.

People who are committed to donating to a charity should find out what records are available through government agencies or consumer groups in their states pertaining to cause-related marketing arrangements.  In Tennessee, the state requires charitable organizations that enter into cause-related marketing arrangements to be registered with the Department of State —  except those groups specifically exempted by law — and to have written contracts with their for-profit partners. 

Also in Tennessee, the cause-related partners are required to keep all records in connection with the charitable sales promotion for no less than three years after the promotion ends.  If there are complaints about a cause-related promotion, the Division of Charitable Solicitations and Gaming has the authority to request copies of these records and take appropriate action.

Being an informed consumer means knowing what you are getting for your money. That principle should apply even when a purchase is linked to a charitable cause.  It is helpful for consumers to know exactly how a charity will benefit from sales of products or services, in terms of the actual or anticipated portion of the purchase price that will go to the charity as well as the duration of the promotional campaign and any guaranteed maximum or minimum amounts of the proceeds the charity will receive.

Tre Hargett is Tennessee Secretary of State. The Tennessee Department of State includes the Division of Charitable Solicitations and Gaming.