Retailers shift their ad spending from TV, radio and print ads to digital ads.
Some retailers are reaping returns by working hand in hand with nonprofit organizations.
Business-Supply.com, a web-only retailer with about $7 million in annual sales, is a small player in the office supplies category. It competes with retailers that sell billions online, like Staples Inc. and the soon-to-merge Office Depot Inc. and Office Max Inc., not only for sales, but also for the sales leads that come from placing its ads high on search engine results pages.
Sean Godier, Business-Supply.com's vice president of e-commerce, knew bidding directly with the major chains on prime pay-per-click keywords would exhaust the e-retailer's marketing budget quickly, and probably not do much to build its customer base. He needed another way to differentiate from the competition.
He'd gotten BusinessSupply.com involved in a local charity on a small scale, though it had minimal business impact as a one-time venture with a narrow audience. But knowing the web could spread a message far wider and on an ongoing basis, he believed incorporating a regular donations program into the business' operations, and on a nationwide scale, would do the trick. "Worst case, it's a branding exercise," he says. "Best case, it's a branding exercise with tons of customer acquisition."
After calculating that such a program could prove cost-effective in several months, Godier in January earmarked 25% of Business-Supply.com's annual marketing budget to finance a new charity program. For every order placed, Business-Supply.com donates one unit of a type of school supply—crayons, markers, pencils, paper, scissors or glue—to the Kids In Need Foundation, a nonprofit organization that distributes the items to teachers through resource centers across the country. Business-Supply.com promotes the program on its home page, and the Kids in Need Foundation directs its site visitors to shop at Business-Supply.com. The foundation also promotes the program through social media and by distributing press releases to its media contacts list, Godier says.
After the first month, the retailer donated more than 33,000 pencils to a resource center in Charlotte, N.C. Word spread. In February, Business-Supply.com acquired roughly 2.5% more customers than in a typical month, Godier says.
Although he can't attribute the entire lift to the donation program, he knows it attracted some new customers. For example, the e-retailer received close to 1,000 e-mails thanking it for the charitable effort, including about a dozen from consumers in the U.S. Virgin Islands who wrote the e-retailer to ask if they could place orders that would benefit the Kids in Need Foundation, too. Those island shoppers either had been forwarded e-mails about the campaign from existing customers or saw media coverage about the donations. (Godier says many education news followers receive alerts about Kids in Need). The answer was yes, and many became customers, Godier says.
The new customers and sales haven't yet justified Business-Supply.com's investment, but Godier anticipates it will start breaking even this month due in part to the site's better positioning in organic search results. The nonprofit work garnered the e-retailer high-quality inbound links from media outlets like news sites and blogs, and those are helping Business-Supply.com show up higher in long-tail keyword searches. Mentions of the nonprofit effort on social media sites are also driving traffic and sales. "Prior to the partnership, we didn't have a single order from places like Pinterest and other social media sites," he says; now traffic and revenue comes from many sources.
Quantifying the business impact of a charitable arrangement can be difficult because it's not always directly related to sales, so many retailers instead look for returns in the form of increased customer engagement, awareness and loyalty, says Clark Fredricksen, vice president, communications, at research firm eMarketer Inc., which tracks cause-related marketing. However retailers assign value, research shows retailers' charitable activities are likely to influence web customers' purchasing decisions, he says. More than half of U.S. online shoppers (56.3%) say they've bought an item specifically because the proceeds or the brand support a cause, according to an October 2012 Internet survey of 400 consumers by research firm Ask Your Target Market.
Retailers work with nonprofits primarily in one of three ways. First, like Business-Supply.com, some retailers commit to a set level of ongoing donations. Others agree to donate a portion of sales to a cause on either a regular basis or in connection with a campaign, such as to support an awareness month or fundraising event. Finally, and increasingly, Fredricksen says, retailers sometimes bake charitable support into their business models from the start. For example, Toms Shoes donates a pair of shoes with every pair bought, Warby Parker does the same with eyeglasses and Lush Cosmetics sells "charity pots" of face cream and soaps that support causes worldwide.
Drawing profits out of nonprofit collaborations is no easy endeavor. Retailers first need to carefully select charities that align with their products or their brand positioning. They then must find a way to support their causes cost-effectively and prove to consumers that they have a real impact on those receiving their support—otherwise consumers may doubt their intentions and respond negatively, Fredricksen says. For example, he says many of the retailers selling pink products purportedly in support of Breast Cancer Awareness Month do not explain clearly, if at all, whether the proceeds actually go to the cause. As a result, some groups of consumers have begun calling those retailers' tactics into question, he says.
However, for retailers that develop a healthy nonprofit collaboration, the returns from increased customer engagement, loyalty and sales can become a significant way to grow their businesses. And e-retailers in particular can widen their customer bases overnight—as with Business-Supply.com's new U.S. Virgin Island shoppers—and compete with large retailers in search marketing without going bankrupt.
Online flower shop Organic Bouquet, an e-retailer owned by BLP Commerce Inc., donates at least 5% of the purchase price from bouquets sold in the "Flowers for Good" section of its web site to various nonprofit organizations, says CEO Robert McLaughlin. The donation percentage is higher when the nonprofit triggers the site visit—nonprofits that drive traffic to the retailer from their own sites or marketing campaigns, such as through a link in a nonprofit's newsletter, typically get up to 15% back from the purchase price of a bouquet, McLaughlin says. That donation program operates separately from the e-retailer's affiliate program.