Raising funds cent by cent: What is the impact of round-up donations?
Point of sale donations encouraging to make a small contribution when paying for a product are increasingly commonplace. Its implementation brings many advantages and some cons.
“Would you like to contribute to this charitable cause by rounding up your bill?”
It is now a frequent occurrence in many stores for the credit card reader to suggest we make a contribution of a few cents to an NGO. The round-up donation is a type of micro-donation at the point of sale, whereby the consumer is encouraged to make a one-off and immediate show of solidarity. But what is the impact of raising funds cent by cent?
The truth is that this type of cause-related marketing – the collaboration between a company and an NGO to increase both sales and donations – has grown constantly over the last decade. In the US alone, point of sale donations raised $605 million in 2020, compared with $389 million in 2012.
Up until recently, individual donors tended to pay the NGOs of their choice a periodic amount. Now, more spontaneous forms of solidarity have become popular, which, according to Esade professor Alfred Vernis, “are more closely aligned with the lifestyle and way of thinking of the new generations.” The round-up donation forms part of this trend, alongside solidarity events and crowdfunding websites.
One-off donations are more aligned with the way of thinking of the new generations
In an article published recently in the Harvard Business Review, Professor Vernis and PhD student Alessandro Cipolla analyzed the phenomenon of the round-up donation, considering what makes it special compared with other types of cause-related marketing.
What is special about the round-up donation?
There are three characteristics that set the round-up donation apart from other campaigns:
- It is an impulsive donation. You are looking for your wallet, your shopping bags are overflowing, the queue of customers behind you is getting impatient... And suddenly, when it looked like you were finally going to pay, the credit card reader suggests a donation. What do you do? Paying a few extra cents may not be the biggest decision you have ever had to make, but clearly it is a decision you need to make quickly. Unlike other forms of solidarity which involve greater reflection, the key here is immediacy.
- It is technology-dependent. As a customer, the process at the payment terminal may appear to be simple, quick and transparent, but behind it lies a highly complex system. To begin with, the store must allow the bill to be rounded up, but on many occasions this means the intervention of the bank is required. Since NGOs do not usually have this know-how either, companies are appearing that act as intermediaries between the retailer, the bank and the NGO to simplify the transaction.
- The retailer does not have to pay anything. Beyond the initial technological complexities, the round-up donation is virtually cost-free for the store that includes it. On the one hand, the retailer does not have to make any financial contribution to the cause, because the consumer makes the entire payment. On the other hand, unlike other solidarity campaigns, the round-up donation requires very little communication, organization or promotion.
Advantages and disadvantages of the round-up donation
To date, the round-up donation is a form of marketing that has received little research attention. As Vernis and Cipolla report, there are no conclusive studies on important considerations such as, for example, whether consumers feel ambushed by this kind of request. However, based on their examination of the phenomenon and their analysis of companies that include it, they put forward possible advantages and disadvantages:
- For the retailers: The main advantage is the lower cost in comparison with other campaigns, in addition to the usual advantages of involvement in charitable causes (gaining customer loyalty, enhancing the store's reputation and motivating the staff). One possible disadvantage is that the round-up donation request may make the customer feel uncomfortable. Furthermore, whenever a company aligns its brand with an NGO’s brand, there is always the risk that the NGO may engage in unethical behavior and, by extension, damage the reputation of the company.
- For the NGOs: The advantages include gaining access to a new and simple means of funding, increasing their visibility, and receiving support and know-how from the companies responsible for rounding up. The disadvantages are losing control of the message behind the cause (the immediacy of the payment does not leave room for this), the lack of direct access to the donor, ceding control to the company, and since the money is donated for a specific project, the NGOs cannot use it to finance their structure.
- For the consumers: The biggest advantage is that it is easy to donate and the donations are small (just a few cents). On the other hand, little information is received about where the donations will go, and the lines between philanthropy and consumption may become blurred.
Leading companies in round-up donations
The country with the highest volume of micro-donations is the United States. In 2020, the main fundraiser was the e-commerce platform eBay, with $82 million. It was followed by the Albertsons Companies group (Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, etc.) with $67.9 million, and the pet hypermarket chain PetSmart, with $44 million.
Round-up donation initiatives are beginning to take off in Europe
In Europe, round-up donation initiatives first appeared in 2019 and they are now beginning to take off. Unlike their American counterparts, the European leaders tend to have a legal status that is far removed from that of a standard capitalist company, lying somewhere between a foundation, a charity and a B Corp. All of them act as a bridge between the NGOs and the retailers in order to smooth the introduction of round-up donations.
Up until now, the funds they have raised continue to fall short of those raised in the US. The leading companies in Europe are Pennies in the UK and Ireland (£5.4 million), Deutschland Rundet Auf in Germany (€1.8 million), microDon in France (€2.7 million), and Worldcoo in Spain, Italy and Andorra (€2.2 million).
The authors, together with PhD student Juan Pablo Casadiego, have recently published the case Worldcoo: Creating a New Market for Consumer Sustainability in Harvard Business Publishing Education, in which they make an in-depth study of the emerging opportunities in this new solidarity market.
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