My background is in marketing and this is one of my major concerns as well. People don’t behave and buy rationally, and don’t accept perfectly rational actions from companies who are “good”. We’re not sure how people will react to a billion dollar guided company who has a CEO who earns 10 million or that pays workers an unfair wage. But I do believe that if that company is open about why they operate the way they do, and they market the impact from their giving, this will still be an advantage. The company might pay its CEO 10 million, but it donated 1 billion this year to effective charities and that saved 100.000 lives. If you focus on the incredible impact that company has I think the overall value of marketing your charitable giving is positive, even if it is small. We know from Newman’s Own that 6 figure pay and increasing prices with inflation are accepted by the general public, so I don’t actually think those are issues. FYI I am from Europe.
The good thing is that even if this makes a small difference to consumers (we agree on that) there’s no reason this won’t work with effective marketing and infrastructure to fund these companies, although that’s far from easy. If a guided company has even a 0.1% advantage to their competition this advantage will compound and the company is “winning” slightly more and the extra profit would be worth the investment from philanthropists. Brad explains this really clearly:
“So, if we define the value of a firm with a normal shareholder set as F(k), I would posit that the relationship between the value of F(c), a firm owned 100% by a popular charity, is that F(c) > F(k). It seems to me that F(c) = F(k) + P, where P is the monetary value of the advantages attaching to the popularity of charities with economic participants vis a vis the popularity of normal investors with market participants.”
Even if P is low, and we argue it might, this company would still outperform the competition. As was discussed before, P is not only from marketing, but also from tax benefits, discounts, free advice/consultancy and improved employee recruitment and retention. My guided company has seen free marketing, advice, consultancy as well as tax benefits and discounts, and our job openings have far more engagement than any I have ever posted for other companies. We have also run a marketing campaign using the ad of our competition and a new ad that focused on us giving away all of our profits and that was clicked on 50% more. We also have traction with brands currently because we donate our profits to charities instead of shareholders, so we’re signing more brands and we’re taking higher commission because we’re an ethical company. We literally have brands tell us “your commission is too high, but we’ll pay it anyway because it’s going to charity and we love what you’re doing”. These results on the most important sides of our business; consumers and brands, is encouraging that the value of P is definitely more than zero and perhaps a lot higher. We do have to gain much more information from our marketing efforts to understand how this translates to purchase intent.
Lastly, I want to say that our researcher just finished his master thesis on the economic feasibility of this business model, and we spoke to all stakeholders (investors, consumers, guided companies, traditional companies and brands). It’s still in draft but I will release it here once it’s ready to be shared (hopefully within a week). This thesis will have a lot more data and references than this paper so it might address some of the empirical concerns that people have voiced.
My background is in marketing and this is one of my major concerns as well. People don’t behave and buy rationally, and don’t accept perfectly rational actions from companies who are “good”. We’re not sure how people will react to a billion dollar guided company who has a CEO who earns 10 million or that pays workers an unfair wage. But I do believe that if that company is open about why they operate the way they do, and they market the impact from their giving, this will still be an advantage. The company might pay its CEO 10 million, but it donated 1 billion this year to effective charities and that saved 100.000 lives. If you focus on the incredible impact that company has I think the overall value of marketing your charitable giving is positive, even if it is small. We know from Newman’s Own that 6 figure pay and increasing prices with inflation are accepted by the general public, so I don’t actually think those are issues. FYI I am from Europe.
The good thing is that even if this makes a small difference to consumers (we agree on that) there’s no reason this won’t work with effective marketing and infrastructure to fund these companies, although that’s far from easy. If a guided company has even a 0.1% advantage to their competition this advantage will compound and the company is “winning” slightly more and the extra profit would be worth the investment from philanthropists. Brad explains this really clearly:
“So, if we define the value of a firm with a normal shareholder set as F(k), I would posit that the relationship between the value of F(c), a firm owned 100% by a popular charity, is that F(c) > F(k). It seems to me that F(c) = F(k) + P, where P is the monetary value of the advantages attaching to the popularity of charities with economic participants vis a vis the popularity of normal investors with market participants.”
Even if P is low, and we argue it might, this company would still outperform the competition. As was discussed before, P is not only from marketing, but also from tax benefits, discounts, free advice/consultancy and improved employee recruitment and retention. My guided company has seen free marketing, advice, consultancy as well as tax benefits and discounts, and our job openings have far more engagement than any I have ever posted for other companies. We have also run a marketing campaign using the ad of our competition and a new ad that focused on us giving away all of our profits and that was clicked on 50% more. We also have traction with brands currently because we donate our profits to charities instead of shareholders, so we’re signing more brands and we’re taking higher commission because we’re an ethical company. We literally have brands tell us “your commission is too high, but we’ll pay it anyway because it’s going to charity and we love what you’re doing”. These results on the most important sides of our business; consumers and brands, is encouraging that the value of P is definitely more than zero and perhaps a lot higher. We do have to gain much more information from our marketing efforts to understand how this translates to purchase intent.
Lastly, I want to say that our researcher just finished his master thesis on the economic feasibility of this business model, and we spoke to all stakeholders (investors, consumers, guided companies, traditional companies and brands). It’s still in draft but I will release it here once it’s ready to be shared (hopefully within a week). This thesis will have a lot more data and references than this paper so it might address some of the empirical concerns that people have voiced.