Boosting Charitable Giving Can Also Boost Profits

As we head into the final weeks of 2021, many nonprofits across the country face an important question: Will corporations step up their donations to charity, or continue last year’s slide? In 2020, as the pandemic swept across the world, giving by individuals went up substantially, with Americans donating $471 billion, a 5% increase from 2019 levels. Giving by foundations spiked 19%, to $89 billion. But corporate giving fell by 6%, to $17 billion.

The Lilly Family School of Philanthropy, which gathers data for its annual Giving USA report, explained that “corporate giving was affected by declines in aggregate GDP and corporate pretax profits.” In 2020, corporate giving accounted for only 3.6% of total contributions to charities, “the lowest recorded value in the last 40 years.” While the pandemic certainly played a role in the decline, corporate donations had already started to become a smaller fraction of the total in previous years. Between 2017 and 2019, corporate giving did go up, but donations by individuals and foundations grew more quickly.

The differences between individual and corporate giving reflect a problem with the way businesses view charitable donations. Rather than seeing them as opportunities to do good when profit margins are high — as well as to get some positive PR and enjoy a tax write-off — corporations should take a whole new approach to charity. It’s time to recognize that giving, when done right, is the ultimate marketing incentive. It draws shoppers and increases consumer spending.

When Customers Choose Charities, Spending Surges

As brands compete for holiday shoppers, they would do well to learn this lesson: Charitable donations can boost sales and profits. Numerous surveys have shown that corporate donations attract customers; Mintel, for example, found that charitable giving affects nearly three-quarters (73%) of Americans’ spending decisions. Half of the consumers surveyed said they would switch to a company that supports a cause they believe in, including 61% of adults age 41 and younger.

These donations can come in different forms. Businesses can choose where to donate, or they can allow individual shoppers to choose a charity — say, as a portion of each sale. Researchers at the University of Miami and the University of South Carolina conducted multiple experiments to determine which of these systems is most effective. At a skating rink, researchers allowed customers to choose how much to pay for candy. Some customers were told the company would donate proceeds to a charity it chose; others were allowed to choose the charity themselves. Those who got to choose the charity spent three times as much for the same amount of candy. Separately, the researchers conducted a similar experiment with a group of graduate students and again found that those who got to choose the charity were willing to spend more.

After leaving investment banking to launch my charity-focused startup, Givz, I tried different ways of boosting charitable donations. I found that building choice-of-charity incentives with brand marketers is by far the most promising. For example, when TB12, the brand owned by NFL player Tom Brady, allowed customers to choose which charities to donate to, its overall sales increased 14%, and average order value (AOV) went up 5%. Since then, brands using similar incentives have seen increases of 10% to 20% for both AOV and website conversions.

Building Brand Loyalty

Companies also find that these kinds of campaigns increase long-lasting brand engagement and loyalty. “When consumers find brands that both offer products they like and support the causes they care about, a bond is created,” explained Michal Ann Strahilevitz, a marketing professor at Saint Mary’s College of California.

In my interactions with consumers and brands over the past two years, I’ve seen that the pandemic, protests for racial justice, and the climate crisis have all highlighted urgent needs for change, sparking greater awareness of the role businesses are playing in helping address such issues. Many people want to see members of the Business Roundtable — leaders from nearly 200 of the largest U.S. companies — follow through on a promise they made in 2019. In their Statement on the Purpose of a Corporation, the CEOs vowed to support communities as stakeholders, along with shareholders, customers, employees, and suppliers.

That sense of purpose is essential to shoppers. A survey across eight countries found that when consumers believe that a brand has a strong sense of purpose, they’re four times more likely to purchase from the company, six times more likely to protect it against public criticism, and four and a half times more likely to recommend the brand.

This push could last well into the future. A recent study suggests that the pandemic could “catalyze a new era of [corporate social responsibility] development in the long run.”

The payoffs are clear. With this new mindset in place, corporations can see financial returns while also helping nonprofits recover losses from the indoor fundraising galas that many have had to cancel. To win over shoppers during the holidays — and year-round — corporations should stop thinking of donations as a nice extra and start treating them as a competitive necessity.