For goodness sake!

Taking cause-related marketing rules to heart

published in McAfee & Taft tIPsheet | August 1, 2014

By Rachel Blue

Race for the CureWhether it’s an organization that is close to the CEO’s heart, a response to a local tragedy, or a PR move to distract from some unpleasant news, there are times when extending a helping hand can also help a company’s bottom line.

Cause-related marketing, in which customers are urged to buy products in order to support a charity (e.g. Buy product X, and we’ll donate 5% to Moore tornado victims) can boost sales volume and polish a corporate image while helping a nonprofit organization. Such marketing is different from commonplace charitable donations or sponsoring a table at a local event. Ad campaigns that co-brand (e.g. the Susan G. Komen Race for the Cure®) or license a nonprofit’s name (e.g. food products that are approved by the American Heart Association) can be a win-win situation – if you follow a few rules.

Most states have their own commercial co-venture and deceptive advertising laws, and in some cases, Federal Trade Commission regulations and federal tax laws will also apply. If you’re running a multi-state campaign, your advertisements must be compliant with the laws of each state in which they run. That may sound daunting, but the good news is that most state laws have similar components, so it’s not that difficult to comply.

Most of the time, if the ad is transparent and truthful, it’s going to be fine wherever you run it. Still, it’s important to get legal advice on the specific campaign to be sure you are compliant with all applicable state and federal laws and regulations. Here are the basics:

  1. A written contract with the charity: Using someone else’s name means getting permission, even if it’s for a good cause. A written understanding with the charitable organization – where they give permission to use their name in the advertisement – is a must. Larger charities often have their own guidelines about donation levels and the type of company with which they want to partner.That might sound ungrateful on the surface, but keep in mind that charities must be cautious about their status as a nonprofit. Some may already have exclusive licensing arrangements for particular goods that would prevent them from entering into a new relationship. Many have specific guidelines about the types of products they want to be associated with. For example, charities whose beneficiaries are children might not want to enter into a relationship with products meant for adults, like alcohol or tobacco. Some also have specific guidelines on donation amounts or require a directed donation to some particular part of their budget. The bottom line is that the charity’s name is at stake, so they can set conditions on its use.
  2. Donation transparency: Most states require a per-unit disclosure (i.e. 5 cents from every purchase). Be careful about broader statements like “20% of the profits,” since the definition of “profit” can vary depending on how overhead, taxes and returns are accounted for. The written contract with the charity may define how that percentage would be calculated (e.g. percentage of sale or profits, net of taxes, refunds, discounts.)
  3. Be clear to the consumer: To avoid problems with federal and state deceptive advertising laws, be sure that a consumer looking to buy the product can understand the terms of the donation. For example, an ad indicating that Company X is a proud sponsor of Charity Y and is pleased to announce that it plans to donate $25,000 to that charity in 2014 is less likely to draw scrutiny that an ad claiming that Company X will make a donation to Charity Y for every item purchased, when in fact the donation will be capped at $25,000. The first ad lets customers decide whether they’d rather buy from you because you’re a swell company, but the second ties the donation to the particular product purchase. The second ad could mislead a consumer who purchases a product after the company has made its $25,000 donation since none of that purchase is going to the charity.

Letting the public know about your company’s commitment to a cause can increase revenues, sell more products, and create customer loyalty. Done right, cause-related marketing can be a way to do well while doing good. Overlooking basic truth in advertising can generate a backlash against both the message and the messenger.

Please be aware that this publication does not contain legal advice. The views expressed in the article are provided for informational and discussion purposes and do not necessarily reflect the views of the author or of McAfee & Taft A Professional Corporation.