Spread the wealth

Some retailers are reaping returns by working hand in hand with nonprofit organizations.

Amy Dusto

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.

Flowers for Good started about six years ago, he says, and at one time generated 30% or more of the retailer's revenue. Now it contributes no more than 10%. He says that percentage fell because the e-retailer entered into so many agreements with nonprofits—it currently works with 55—that it can't invest heavily in building relationships with all of them.

Some organizations promote Organic Bouquet with links and marketing messages, and Organic Bouquet in turn promotes their events or upcoming programs on social media or sometimes with an e-mail, though not daily, McLaughlin says. "That's just because we've accepted too many charitable organizations," he says.

This year, McLaughlin plans to pare the list so Organic Bouquet can reinvigorate the program by concentrating on fewer causes, he says. "If you're working really closely with one nonprofit it can be really financially rewarding for both partners," he says. For example, People for the Ethical Treatment of Animals, or PETA, and the Nature Conservancy both have consumer audiences numbering in the millions, he says, which means Organic Bouquet gains exposure to potentially that many of what he calls "like-minded" customers.

Occasionally web shoppers e-mail Organic Bouquet with complaints about some of the nonprofits the e-retailer supports. McLaughlin won't say which ones, but says he takes the feedback into consideration and looks into the complaints with the nonprofits if warranted.

"All partnerships reach out to new customers or reinforce our positions with current customers," McLaughlin says. In addition to reaching new demographics through nonprofits, the arrangements usually generate links directing traffic back to Organic Bouquet's web site, which raises its rankings in search engine results, he says.

During the Gulf of Mexico oil spill in 2010, for example, three of the nonprofits Organic Bouquet supports were involved in the cleanup: The Nature Conservancy, the National Wildlife Federation and the Ocean Conservancy. The retailer marketed a Gulf Relief Collection of products—two wreaths, a fruit gift box and some fresh flower arrangements—and donated $10 to the causes with each purchase.

It promoted the products and the causes through e-mails and social media, he says, and the nonprofit groups did the same. For example, the National Wildlife Federation posted on its Facebook page, which has more than 125,000 fans, a description of the offer and link to OrganicBouquet.com. The offer raised Organic Bouquet's revenue for a month nearly 15%, and the merchant donated more than $5,000 to the nonprofits. "If done the right way, it can generate a lot of money," McLaughlin says. OrganicBouquet.com had 2011 web sales of $2.2 million, Internet Retailer estimates.

Fredricksen says zeroing in on a few causes, rather than giving to every cause, shows consumers that a retailer is sincere about supporting those causes. Consumers get suspicious when they can't easily understand the connection between a cause and a product or retailer, he says. Retailers should also be careful to avoid arousing suspicion with their pricing, McLaughlin says. They shouldn't, for example, charge one price for a dozen roses on the main site and $2 more for the same roses on a section promoting the nonprofit work. Consumers are often unwilling to pay a premium just to support a cause, Fredricksen says.

Learning that lesson cost online tickets reseller Tickets for Charity, a for-profit business, $1.2 million. Tickets for Charity resells to consumers tickets donated in full or in part by sports teams, music labels or companies. The retailer sends all the proceeds to a charity of the donor's choice—providing the donating businesses with a tax write-off. Tickets for Charity makes money on the $17 to $19 service fee it charges per ticket, says CEO Jay Whitehead.

In 2009 Tickets for Charity paid $1.2 million to the Rolling Stones' record label for concert tickets, then tried to resell them above face value, thinking that goodwill-filled consumers would be willing to pay the premium since the money was going to a charity selected by the label. The effort was a total loss, he says: few sold, and the retailer lost essentially all it paid for the tickets. "So we know for a fact that in order to sell a ticket for charity, it has to be the same or lower price and the same or higher quality," he says.

Once Tickets for Charity began proving to sports teams, music labels and corporations that it could sell their excess tickets effectively—by staying competitive on price and quality of service—more organizations began signing up to use the retailer as a way to cut losses from unused tickets, Whitehead says. Doing so simply took time, gumption and $24 million in financing over the years, he says. It expects to turn its first profit this July. Now Tickets for Charity plans to begin selling other "ticketizable" products, such as spots in a summer camp run by professional athletes from one of the sports teams it already works with, he says.

Generating returns from supporting good causes is not for the faint of heart. But dogged e-retailers that wisely select charities, plan to fit donations into their web strategy and prove the value of their efforts can help spread the wealth, including to themselves.