Making “Customer-driven Philanthropy” Work

Corporations must consider many factors when developing their strategy for philanthropy and community investment. First and foremost, they must identify the fundamental social impact they hope to achieve, the lives they want to affect, and the metrics they want to use to measure success. In addition, they have to navigate the complexity of managing the interests of various stakeholders—their executives, employees, policymakers, community leaders, suppliers, and vendors. But it’s also important that they take their customers into account. 

Although many studies highlight the benefits of corporate philanthropy and volunteerism for employees in terms of satisfaction, morale, retention, and skill development, the research on customer benefits of corporate philanthropy is still nascent and spotty. What we do know is fascinating. Last year, a study by Cone Communications and Echo Research found that 90 percent of shoppers worldwide are likely to switch to brands that support a good cause, given similar price and quality. Another very recent study in China showed that corporate social responsibility had a positive impact on customer perceptions of a company and brand loyalty. And a specific study for Hershey’s Company found that, once consumers were aware of its philanthropy, their purchase intent and brand loyalty showed significant increases. 

A few years ago, a Harvard Business Review article explained that customers want a shared purpose with corporations, not be bystanders. They want to feel like they are important, are a part of something, and have influence. In fact, customers are now integral to product development and innovation, and crowd-sourcing has become a commonplace method of gathering solutions, ideas, and funding. A just-released Deloitte report on business ecosystems talks about the break-down of traditional barriers between corporations and customers. For example, one way that LEGO innovates is through its LEGO Ideas portal, which allows enthusiasts to submit ideas and share feedback, accelerating the company’s product-innovation cycle. Given all of this, why don’t corporations make customers more integral to their philanthropic development?

Some relatively recent examples of customer-driven philanthropy include the Pepsi Refresh Project (which awarded a total of $20 million in grants to customer-recommended social impact projects), State Farm’s Cause an Effect (a youth-led crowd-sourced philanthropic project that administered a $5 million fund), and American Express’s Members Project (which allowed individuals to suggest and vote on projects, directing more than $5 million of corporate philanthropy). All of these efforts, in their own way, aimed to break down the fourth wall with customers and get them involved in giving. All received a massive amount of media attention and accolades. All promised to redefine corporate philanthropy, and embrace technology and social media. And all are now defunct. 

These efforts faced some of the same significant challenges: Many customers perceived them as mere marketing ploys; they were expensive to manage; they required grantee accountability; and it was difficult to sustain the work. But the fact is that none of these presents an insurmountable barrier, and customers can and should be engaged in corporate philanthropy. Customer engagement increases social impact by widening engagement, education, and giving, and increases the bottom line by fostering greater company and product loyalty.

Corporations can make “customer-driven philanthropy” more sustainable and impactful by:

• Making sure the effort matches the company’s business and philanthropic strategies: First and foremost, customer-driven philanthropy makes sense for companies and brands that are visible to customers—especially when there is strong brand differentiation and loyalty (for example, consumer goods). For customer-driven philanthropy to be effective, customers have to have the space and flexibility to provide input. Companies can provide guardrails but have to be willing to give up at least some control of where the funds go. This is not necessarily dependent on the size of the organization, but on the culture of the company and its openness of the final recipients of the funding.
• Allocating enough budget and attention. Customer-driven philanthropy projects, done well, take significant financial and time resources to administer. Make sure that all levels of staff buy into and commit to supporting the initiative, and that there is adequate budget for the work.
• Helping educate customers. We all know that having more information helps us make better, more strategic decisions. One way to make sure that customer-driven philanthropy achieves its intended social impact is to help educate customers so that they better understand the problem and possible solutions. This is a new and unexpected role for corporations but can fundamentally transform the potential of customer-driven philanthropy. For example, if a company is focused on improving education, it might share— in layman’s terms—some of the latest ideas on what contributes to current problems and what evidence-based solutions exist. This could be as simple as posting a fact sheet, or links to information or videos on the corporate philanthropy site.
• Building in accountability. With customer-driven philanthropy, customers at least provide input on corporation grantees, and at most make the final decision about where a corporation directs its philanthropic funds. Given the wide scope of these efforts and the corporation’s relative lack of control, accountability has to be built into the process. It is important that companies integrate accountability criteria (legal status confirmation, specifying use of funds, etc.) from the beginning, and ensure that grantees share back impact and provide feedback so that efforts can continuously improve. This wasn’t part of any of the three large-corporation efforts mentioned earlier and may be one reason they are no longer in place. 

Last month, Pepsi announced a new “Pepsi Challenge.” This time, instead of focusing on taste comparison, it is challenging the public to bring solutions to poverty to light. That’s quite the challenge indeed, and it will be interesting to see whether this and other customer-driven philanthropy efforts evolve and gain traction. 

Read more stories by Anna Pikovsky Auerbach.