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.
How is donating an hour of volunteer labor to someone’s campaign any different from donating an hour’s wages to someone’s campaign?
People often use the “hour of labor” argument. I remember someone once telling me that I was crazy to spend time clipping coupons because “your time is worth at least $200 per hour.”
To that, my response is, “Show me the magical black box where I can turn in an hour of time and get $200 back.”
Most people don’t have the ability to convert their excess time into money, so when they donate time to a campaign, it just means less time watching Paris Hilton or playing XBox.
Money, on the other hand, are a fungible asset, which could just as easily be donated to a worthy cause.
Thanks for pointing out the real numbers. I can understand this from a business standpoint, whether well intentioned or not, it’s a goodwill/branding thing. Part of me wonders though…the people who buy this stuff seem to be buying it for the wrong reasons. It’s like giving money to a charity and making sure everyone knows about it. All these items are a way for people to say “look at me, I care”. If people really cared they’d just write a check, without the fanfare.
Is campaign finance reform one of those good ideas that will never make it because it sound so bad when described in one sentence?
Seems like 20-somethings like myself get a lot of flack for being a cynical generation, but how can you blame us.
On the topic of campaign donations, it seems like donating an hour of time is much more democratic, because the amount everyone has to give is at least on the same order of magnitude.
Matt,
I agree that campaigns like this exist primarily to let people launder their guilt.
Economists sometimes note an adverse effect to the use of incentives–charging a fine for doing something wrong can actually increase the incidence of the crime, because people believe “its okay” as long as they pay the fine.
I’ll leave it to you to decide how to intepret this in terms of Al Gore and the folks at Davos and TED flying around in private jets and buying carbon offset credits.
Alex,
If anyone asked me, I’d promote campaign finance reform by asking:
Would you rather have presidential candidates pay for their campaign with government funds, or by accepting contributions from lobbyists and special interest groups? How much are you willing to pay for an honest president?
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