There’s been quite a bit of agita in the blogosphere about this Ad Age article that details how the companies involved in the RED campaign spent $100 million on marketing, and thus far have only raised $18 million for charity.
The problem is that all of these bloggers are dead wrong in the conclusions that they drew, as was Ad Age. Anyone who read the article and considered the campaign a failure knows nothing about business.
So let me break it down for you, HBS-style:
According to what I’ve read, the companies that participated in the campaign committed to donating 40% of profits on the merchandise.
Checking Yahoo! Finance, it looks like Gap makes pretax profits of $1.7 billion on sales of about $16 billion, for a profit margin of roughly 10%.
If the other companies participating in the campaign show a similar pretax profit margin of 10%, then we would expect the $18 million to represent 4% of total sales, pegging total sales from the RED Campaign at $450 million.
So while spending $100 million to get $18 million may seem like a total bust, the companies that participated did manage to sell $450 million of merchandise, and made profits of $27 million, even after spending $100 million on marketing.
You can argue whether or not the RED sales cannibalized existing sales, and whether or not the campaign delivered a better ROI than the other options, but when you consider the positive halo effect of the campaign (donating millions to charity can help a lot of people forget about sweatshops and other such sins), I’m betting that the companies that participated aren’t crying in their drinks.
The outrage and schadenfreude over RED seems to be focused on how the $100 million that was spent on marketing could have been donated instead. And that may be the most inane thinking of all.
Businesses exist to make money, and there is no way that the CEOs of the participating would consent to donating $100 million to charity without getting something back. That option was never really on the table.
Now if you do feel like getting outraged about something, how about protesting the fact that the 2008 presidential campaign is likely to see candidates raising and spending $1 billion on advertising and marketing.