Corporate Sponsors: Brief

Creating Higher-Order Value With Constituency Marketing

A General Point-of-View for Corporations Seeking Strategic Advantage

By Richard J. Morello

Executive Director, President
Family Reach Foundation

SUMMARY

The following Point-of-View presents the case for corporations to employ the practice of Constituency Marketing as a progressive, strategic approach to address the higher-order needs of customers, employees, community and partners. Often referred to as cause-related marketing, strategic philanthropy, or social enterprising, combining profit and non-profit forces to serve dual strategic purposes has become a growing tool for many organizations. Companies like American Express and Wal-Mart have long been champions of these types of initiatives that fit the underlying business missions of the organization. Some research firms estimate that corporate sponsorship of social programs totaled $750 million in the U.S. in 2000, and many business leaders believe spending will continue to increase at a steady rate.


BACKDROP: SEEKING STRATEGIC ADVANTAGE

Large companies operate in an environment marked by hyper-competition for the attention and loyalty of key constituents. Fulfilling the needs of customers, employees, community and partners is a never-ending battle that requires organizations to reinvent strategies and tactics to outclass the moves of rivals. Traditional approaches to win sustainable constituent allegiance, and ultimately to build shareholder value, can only go so far. The needs of company stakeholders are too sophisticated to treat in a non-progressive fashion. Over the long-term, constituents are often drawn to the higher-order benefits presented by companies through products themselves, as well as through complementary offerings that embody their related values, identity and purpose.

Operating in parallel to profit-seeking corporations are thousands of non-profit organizations (NPOs) that work diligently to fulfill higher-order social missions by serving the educational, healthcare, economic, cultural and other needs of millions of people around the world. To accomplish their objectives, NPOs rely on the philanthropy and involvement of individual donors, private foundations, the government and corporations. They are in a constant race to secure funding to maintain their missions and to ensure that their own constituents are served. Without the continued generosity and substantive involvement by corporations and other parties, NPOs will face tremendous challenge in meeting the intensifying demands of the social sector.

Over the last few decades, leaders in the corporate and non-profit worlds have realized the great intersections of missions and goals. In order to fulfill the needs of their relative constituents, companies and NPOs have partnered to create programs that generate significant value in both commercial and social terms. Certainly, the societal benefits of these efforts must be a primary motivation of companies or the programs would likely fail. But corporate managers understandably expect economic benefits to follow. By strategically constructing programs around the higher-order needs of constituents, corporations strive to create more satisfied customers, employees, partners, and other stakeholders, and in turn drive profits.

According to Professor Alan Andreasen of the School of Business at Georgetown University, cause marketing sprouted in the early 1980s as a new approach to product promotion. "The tremendous potential of affiliations between non-profit and for-profit organizations was first recognized by American Express in 1982 when Jerry Welsh, then chief executive officer of worldwide marketing, had an idea for a campaign" (Harvard Business Review on Non-Profits, 1999, p. 115). Since then, as Andreasen explains, the number of similar alliance and campaigns has skyrocketed. "Avon, American Airlines, Ocean Spray, Polaroid, Ramada International Hotels and Resorts, Arm & Hammer, Wal-Mart Stores, and many other corporations, have joined forces with national non-profit institutions..." (HBR, p.116).

Since the late 1980s and early 1990s, significant research has been performed to assess the benefits of cause marketing as a corporate tool. A number of studies have indicated that these kinds of programs generate positive effects on consumers and employees:

• "61% of Americans would switch retailers if they are associated with a good cause" - Starch Roper Worldwide, 1999
  
  
• "83% of American consumers have a more positive image of companies aligned with a cause" - Cone/Roper, 1999
  
  
• "87% of employees at companies with cause programs feel a strong sense of loyalty to their employer, versus 67% of those who do not have such a program" - Data Highlights
  
  

In addition, research has suggested that long-term, focused commitments by companies may have a more positive affect on constituents than smaller, dispersed efforts:

• "77% of Americans prefer companies that commit to a specific cause for a long period of time rather than focus on many different causes over shorter periods" - Cone/Roper, 1999
  
  

These kinds of results helped lead to growth in spending through the 1990s:

• "Cause marketing, in which a company sponsors a cause, is the fastest growing form of sponsorship, rising 24% last year to $314 million in North America" - Hass School of business: 1999
  
  

VALUE PROPOSITION FOR CORPORATIONS

As Exhibit 1 on the following page illustrates, large companies have a host of stakeholders to serve in their quest for value creation and beating the competition. Each constituent plays a role in driving the performance of the company, and each must be presented with compelling offerings and benefits to sustain loyalty. To accomplish this, companies are in an endless cycle of developing innovative products and services for customers, fostering a dynamic culture for employees, connecting with the needs of the surrounding community, and building productive connections with suppliers, the channel, and other parties.

Unfortunately, companies often rely too heavily on traditional approaches to keep their constituents satisfied. For customers, managers may overuse basic promotions and advertising by thinking too narrowly about the short-term sales target of a product, failing to appreciate the needs of establishing longer-term relationships. For employees, organizations can miss the broader attachment needs of its workforce and fail to drive optimal productivity and retention. Constituency Marketing, therefore, attempts to arm corporate managers with creative approaches to targeting specific stakeholders with new programs and offerings through partnerships with NPOs and social ventures. These initiatives are meant to complement corporate and product missions, and strengthen a client's ability to outperform its competition in winning the attention and loyalty of key constituents.

As a whole, Constituency Marketing programs could offer a range of unique benefits to clients:

• Broader exposure and attachment to the company's core mission, strategy, product attributes and culture through tangible initiatives
  
  
• A pool of capabilities, multiple points of influence and access to targeted constituents by partnering with NPOs
  
  
  • Existing networks of volunteers and beneficiaries
    
    
  • Expertise in executing program components
    
    
• An additional differentiation tool against competitors
  
  
• "Free" publicity and goodwill in the marketplace
  
  
• Synergies with corporate and product advertising
  
  

THREE FORTUNE 500 EXAMPLES

Three compelling examples help demonstrate the notion of how companies have combined commercial and non-profit forces to appeal to the higher-order needs of key constituents to win in the marketplace. For decades, McDonald's has complemented its core fast food products with services that solidify its family and community identity with all of its primary constituents. The McDonald's playgrounds and Ronald McDonald House children's charity are in many respects as central to the company's value proposition as the Big Mac. These offerings attract customers, build pride with employees, establish effective relationships with local communities, and provide investors with a clear sense of strategy and positioning in the marketplace.

Home Depot for 20 years has dedicated over $100 million and countless employee volunteer-hours to achieve strategic and social missions. As the chief executive officer of the company reports on its corporate website:

We are continuing to reach customers in non-traditional ways through programs like The Home Depot Safety Works for KidsSM and The Home Depot Kids Workshops®, where young children wearing pint-sized orange aprons lead their parents into the stores to build projects together. In addition to teaching home improvement skills, clinics bring customers into our stores to learn how to prepare for disasters. As a result of extensive educational programs, we find that businesses, communities and non-profit organizations turn first to The Home Depot for advice, products and assistance in times of need.

Home Depot creatively augments its core product offering by appealing to the greater needs of mass-market customers, employees and the community. Local stores donate supplies, while employees and other volunteers help construct homes, provide disaster relief and other assistance to families and neighborhoods in need. This approach helps define the identity and commitment of the company, and ultimately attempts to build affinity with everyday customers who have free choices in the marketplace.

Finally, there is Ben & Jerry's that has pursued a long-standing cause-related marketing approach to the business. For every ice cream product sold, Ben & Jerry's donates a fixed percentage of pre-tax earnings to a wide range of charities dedicated to environmental, child welfare, and other missions. The company established highly-loyal customers and satisfied employees by appealing to more than simply dessert palates. The company earned a competitive advantage by breaking through traditional ideas and pursuing a more holistic approach to connecting with its constituents.

These kinds of opportunities and initiatives have not gone unnoticed by third-party firms catering to both for-profit and NPO clients. In the last 10 years, small mom-and-pop firms as well as arms of larger advertising and PR agencies have aligned resources to help clients create a wide range of similar programs.


OCCASIONS FOR CONSTITUENCY MARKETING

The following paragraphs present a sample of strategic scenarios that could serve as context for Constituency Marketing applications:

Hyper-Competition for a Consumer Product or Service ("The Consumer Dog Fight"): The Company faces stiff challenges for long-term market share by one or multiple rivals. Differentiation on a simple product attribute basis is becoming more difficult. Competitors may attempt to gain share on low-price. The cost for reacquiring customers is high. Loyalty and repeat business are keys to the business. The Company lacks a high-visibility, cause-related presence with primary customers. A broad, well-thought campaign that relates to the values of target customer segments could go a long way to solidify relationships and affinity despite competitor threats.

Competitor Offers its Own Constituency Marketing Campaign for Customers ("The Competitive Rebuttal"): The Company's direct competitor has initiated its own Constituency Marketing campaign to gain the attention and loyalty of core customers. Research suggests the campaign has been successful in attracting publicity and positive responses from customers. The Company feels that in order to play at the same level, it must develop its own unique program.

Company Lacks the Kind of Image it Desires ("The Image Builder"): The Company is a relatively new player in the market or has undergone significant change. Its customers, employees, the community and partners are unclear what it stands for, values, or strives to achieve. A high-visibility campaign, based on a cause that reflects its new mission and values, will generate significant publicity and the right kind of attention.

Tough Times have Hurt Morale and Productivity ("The Morale Booster"): The Company has gone through difficult change and economic times. As business stabilizes, management wants to reinvigorate employees and reiterate the company's mission and values. A campaign targeting employee involvement and higher-order needs will support these needs.

PROGRAM IDEAS: AN EXAMPLE

The following is a theoretical example of a potential Constituency Marketing program. The program fits into the "Consumer Dog Fight" category of stratgegic occasions:

Company A is one of the largest apparel retailers targeting children and young adults. Over the last decade, the market has been filled with competitive firms offering marginally different styles and approaches in an attempt to win in the 14-18 year old segment of consumers. Company A has seen its share decrease and now is the number three player in the U.S. Management is looking for innovative ways to promote the company's identity and relate to the 14-18 year old segment in broader ways.

A team has performed an assessment of this segment for Company A and has proposed a program that focuses on these consumers' higher-order needs. The program will be a national SAT/ACT preparation sponsorship of 5,000 lower-income high school students seeking to go to college. The program will include a test prep partner (e.g. Princeton Review or Kaplan Test Prep) and a designated community NPO (e.g. Teach for America). The test prep partner will offer discounted admissions to their regular classes which will be paid by Company A through donations to the NPO. Interested students, including those of employees, can apply based on financial need, and spots in these classes will be distributed throughout the country. The program will be promoted via Company A's planned advertising as well as through separate media. The program will reflect Company A's connection with their target market. Teach for America will use its network of teachers to help identify strong candidates for the program, ensuring a greater probability of success for the overall program's mission of having financially distressed students prepare for and do well on the national college entrance examination. The program will further enhance Teach for America's reputation and scope of involvement in the education of children in less privileged districts.

CONCLUSION

Constituency Marketing, a derivative of cause marketing and strategic philanthropy, has a definite place in the marketing arsenal of corporations. While it is not a practice designed to supplant traditional marketing approaches, Constituency Marketing has the value of appealing to a set of high-order needs of customers, employees and other stakeholders. By carefully targeting specific constituent priorities and designing creative ways to appeal to their needs, corporations have the opportunity to work in partnership with NPOs to deploy compelling, high-return programs. McDonald's, Home Depot and American Express were some of the early pioneers -- there will certainly be others to follow.


Richard Morello is the volunteer Executive Director of the Family Reach Foundation and Director of Strategy for the Joslin Diabetes Center, an affiliate of Harvard Medical School and Beth Israel Deaconess Medical Center. Mr. Morello has consulted for over 20 Fortune 500 companies on the topic of strategic marketing since 1992, primarily as a member of Mercer Management Consulting. He holds a Master's degree in marketing from the Kellogg School of Management of Northwestern University and a Bachelor's degree in economics and government from University of Virginia. He is a regular guest lecturer on strategy and marketing topics at the McIntire School of Commerce at the U. of Virginia.