Shriner's Hospital deal with Coca Cola

Cashing in on Charity's Good Name


Cashing in on Charity's Good Name
Groups gain from marketing deals, but do they sell themselves short?

Chronicle of Philanthropy, July 30, 1998

By Susan Gray and Holly Hall
Reprinted with special permission of the Chronicle of Philanthropy, July 30, 1998.

Last year, Boys & Girls Clubs of America won a $60-million marketing contract with the Coca-Cola Company. Widely believed to be one of the most lucrative marketing deals ever negotiated by a charity, the decade-long agreement paves the way for Coke vending machines to be installed in many of the charity's more than 2,000 clubs. The deal promises the charity not only money, but publicity when Coke uses Boys & Girls Clubs' name in promotional campaigns.

The number of charities that are negotiating big marketing deals with companies has been growing rapidly this decade. Non-profit groups can expect to receive $1.5-billion in marketing fees this year, up from $300-million in 1988, according to IEG, a Chicago company that monitors such deals, which include sponsorship of charity events and licensing a charity's name to use on products.

But some business experts say charities could be making far more money from such deals than they do, and that too many non-profit executives lack the skills to persuade companies to give charities as much as they deserve.

On top of that, charities have struggled with corporate demands that have sapped time and resources of charity staff members and raised awkward ethical questions.

Charities and companies have also faced criticism from consumer-watchdog groups -- and violated laws in some states -- by refusing to state in advertising materials exactly how much money an organization will receive through marketing promotions.

"It's a steep learning curve for the non-profit world," says Harold Levine, a New York consultant who specializes in marketing promotions involving charities. "I still have clients who don't understand marketing at all."

In spite of the problems, many in the charity world say dealing with marketing arrangements, often called "cause-related marketing," is far less difficult than many expected.

In the 1980s, when joint marketing arrangements became popular, critics predicted that donors and lawmakers would be infuriated when they saw their favorite charities entering into unabashedly commercial agreements. However, few charities say they have lost donors because of the deals, and such arrangements have not prompted any major new legal restrictions on the kinds of deals tax-exempt groups can make.

"The debate is over on whether cause-related marketing is a good thing or not," says Kurt Aschermann, senior vice-president for marketing at Boys & Girls Clubs of America. "Those standing back are going to watch the world march right on by."

The deals typically take one of three forms:

* Arrangements in which companies give a portion of proceeds from the sale of a product or service to charity.
* Sponsorships, in which businesses underwrite charity events or programs in exchange for publicity.
* Licensing, in which manufacturers pay to use a charity's name and logo on products like clothing, furniture, and food.

Companies say they are pouring more and more money into such deals because of increasing evidence that charity tie-ins help the bottom line.

For example, when Coca-Cola promised to donate 15 cents to Mothers Against Drunk Driving every time a case of its soft drinks was sold in a six-week period, the company saw sales rise by 490 per cent at 450 Wal-Mart Stores, compared with the same weeks of the previous year. In return, MADD received $500,000.

Charities of all kinds are benefiting from marketing deals. Among them:

* Habitat for Humanity International expects some $12-million this year from marketing arrangements, up from just $100,000 in 1991. Many of the promotions involve letting companies put up banners with their names on sites where houses are being built for needy people.

* Ducks Unlimited anticipates $5-million from 55 licensing deals this year. The charity has seen such revenue increase by at least 10 per cent in each of the past three years. In some cases, companies have used the charity's name to create a new line of products, such as Ducks Unlimited sportswear and furniture.

* Save the Children, which will also earn about $5-million this year from marketing deals, has more than doubled the number of staff members working on promotions in the last two years, from four to nine. The charity gets a percentage from the sale of more than two dozen Save the Children products manufactured by several companies. They include uniforms for medical workers, jewelry, toys, and even a line of "pet furnishings" like beds and food and water dishes.

While those dollars are helping charitable organizations meet their expenses, experts say they suspect that many organizations could demand far more from companies.

"A lot of non-profits undervalue themselves," says Michael Jensen, president of SponsorVision, a Tacoma, Wash., consulting firm that helps charities negotiate marketing deals. He complains that some groups "would dance for a dollar."

American charities are not the only ones that don't charge companies enough, says Sue Adkins, director of cause-related marketing at Business in the Community, a London charity that promotes corporate social responsibility. Concern that British charities were undervaluing themselves is one reason that her organization last month released new guidelines to help both charities and businesses forge mutually beneficial marketing deals.

One of the biggest stumbling blocks, Ms. Adkins says, "is being clear and proud of the value of the charity. Actually knowing what your worth is a challenge."

Some observers say Reading Is Fundamental, a Washington charity, should have asked for more than the $1-million it received from Visa in a campaign called "Read Me a Story" last year.

The financial institutions that own Visa paid to use the charity's name and logo in a promotion for the credit card. Print and broadcast advertisements throughout the two-month campaign highlighted the importance of reading to children. Numerous news broadcasts and publications made mention of the campaign, increasing its visibility.

Robert Pifke, senior vice-president of marketing services at Visa U.S.A., says that his organization saw a 15-per-cent increase in card use during November and December 1997 compared with the same months in 1996. A survey of credit-card holders following the campaign found that 62 per cent preferred Visa to other cards, the highest rating it has seen, apart from when it sponsored the Olympics in 1996.

Some marketing consultants who were not involved in the campaign say they think such benefits suggest that the financial return to Visa was far more substantial than the amount paid to the literacy charity.

"Did RIF get ripped off?" asks Mr. Levine, the New York consultant. "That's a good question. I don't think RIF was taken advantage of, but could they have asked for more? Probably."

Reading Is Fundamental officials say they are pleased with the $1-million, which was a significant addition to the $5-million they raised in private donations last year. But James Wendorf, the charity's chief operating officer, says, "In the future, we will negotiate in ways that we haven't done up to this point. There will be levels set for cause marketing."

Setting such levels may be hard, however, because there are no agreed-upon standards for setting fees. Most companies base their payments on the size and influence of the charity they wish to enlist in their marketing efforts.

Coca-Cola, for example, has made a very different deal with Shriners Hospitals for Children than it did with Boys & Girls Clubs. In large part that is because the health-care institution runs only 20 hospitals nationwide, compared with the 2,000 Boys & Girls Clubs, which serve nearly three million youngsters.

Instead of offering cash, Coke promised Shriners only that it would put advertising for the hospitals on its trucks and vending machines. And it elicited an agreement from Shriners that its institutions sell only Coca-Cola-brand drinks on its premises.

Shriners' leaders say they have no qualms about getting less than Boys & Girls Clubs and that their chief need is greater visibility as they seek to fill empty beds in their hospitals.

But not all discrepancies in the deals have to do with the potential a charity has to attract customers.

Corporate leaders say many charity fund raisers forget to switch gears when they make a pitch for a marketing arrangement.

Business executives get annoyed when fund raisers stress the non-profit organization's needs, as they would in a request for a philanthropic donation. Instead, corporate officials say they want to hear solid evidence that the charity can help the company's bottom line.

Some charities have tried to increase their business savvy by hiring people with business degrees or corporate resumes to handle marketing work.

The Nature Conservancy hired Amy Longsworth, who has a Harvard M.B.A., to oversee a staff of eight employees who work full time on marketing contracts. In Ms. Longsworth's tenure, the charity's marketing revenue has grown from less than $200,000 in 1990 to nearly $5-million last year.

Ms. Longsworth says she moved quickly to institute new policies, such as refusing to accept any agreement that offers less than $100,000. "I don't want my staff selling anything less than $100,000," says Ms. Longsworth. "There are opportunity costs I can't afford."

Without strong negotiating skills, charities not only have problems in getting as much money from companies as they deserve. They also have trouble persuading companies to spend enough to advertise campaigns designed to benefit charity.

Second Harvest, the Chicago-based national food-bank network, toughened its negotiating stance after two marketing promotions failed. "Many times companies think the charity's reputation alone will bring an increase in sales, so they cut back on advertising," says Kathy Super, director of development. "But they cannot rely on the charity to do the advertising. We simply do not have the revenue or the manpower."

Now, before agreeing to any marketing deal, she says, Second Harvest not only demands that the company sign a contract saying how much the charity will receive, but also requires companies to submit a plan spelling out how they will publicize each promotion and how much they will spend on advertising it.

Other charities say they also set limits on how much time or other resources they will put into a marketing promotion.

One corporation wanted Mothers Against Drunk Driving to work with four different departments in the company and to help it recruit celebrities to endorse a national marketing promotion. In the end, MADD walked away from the deal. "It was too much manpower for too little money," says Doug Kingsriter, executive vice-president for business development. He declined to name the company involved.

Some corporate officials say they think charities take an unrealistic view of how much they should be expected to do to make a marketing arrangement a success.

"It does require intensive efforts over the long haul for both sides," says Scott Jacobson, a spokesman for Coca-Cola. "Coke business doesn't happen from sitting around and watching it happen. It does take staff time and creativity. It's not the kind of thing that Coke can come in and make it happen alone. Nobody should expect that."

For many charities, concerns about time and other resources are less of an issue than corporate demands that go against a charity's values and ethics.

The National Kidney Foundation, which takes in $50-million annually -- mostly from marketing fees -- has a strict policy against naming any particular product in its educational videotapes and pamphlets about kidney disease and treatment, out of fear that doing so would cause patients to lose faith in the group's advice. It does, however, allow pharmaceutical and other companies to advertise in the materials.

But companies sometimes try to cross the line, says Lynn Badura, the foundation's corporate-projects director. She says she was working on a brochure for patients when a company repeatedly tried to get the charity to bend its rules by naming the company's products in the educational text. "This is a constant balancing act," she says.

Many health charities have faced stiff criticism in the past two years because they have endorsed products. The American Cancer Society, for example, was attacked after it sold the exclusive use of its logo to NicoDerm, a smoking-cessation patch. Critics argued that the deal undermined the charity's ability to recommend other products to the public that are just as good, or even superior, in helping people quit smoking. The society has since re-negotiated the NicoDerm contract, dropping the exclusivity provision.

Another corporate demand that often causes anxiety at charities is requests for donor lists. Some charities, including the Audubon Society and the Nation al Kidney Foundation, routinely hand over their membership lists as part of marketing arrangements they work out with credit-card and other companies. But others have decided that sharing donors' names could turn off their supporters.

"A lot of companies come to us and want our donor list, but it's an absolute No for us," says David McKee, assistant national director of ALSAC/St. Jude Children's Research Hospital, in Memphis.

With the rush to win big-dollar marketing contracts, more charity leaders say they need to set boundaries and stick to them. "Now more than ever, we need to study and apply whatever ethical measure we're going to use," says Paul Hogle, vice-president for development at the Baltimore Symphony Orchestra. Mr. Hogle helped form a group of more than 30 orchestras that have banded together to seek marketing deals with companies that want to reach a national audience.

He says the effort was slowed by divisions among the orchestras over whether the group should offer companies certain benefits, such as access to donors' names and addresses. "There are increasingly blurry benchmarks for what's appropriate and what's not," he says. Too often, he says, the weighing of ethical consequences takes place too late. "What's appropriate is a lot harder to decide," he says, "after you've got the money."


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