Spending your way to charitable donations

There has been a lot of debate about cause related marketing concepts like the RED campaign. Some people question how much money actually goes to charity and whether buying something with the agreement the seller will donate a portion to charity is a model that even makes sense.

I think that donors (and consumers) want to take greater control of the transactions they engage in. For instance, I use the Chase Perfect Card for my daily purchases. Instead of rewarding me with miles or some sort of gift, the Perfect Card simply rebates 1% of my purchase price in cash back to my card. Rather than having to deal with figuring out the various airline mileage schemes, I get pure cash that I can use in any way I want. There are charity branded credit cards but they 1) force me to donate all of my rewards to one charity and 2) often don’t offer very high reward rates.

This brings me to FreePledge.com. For a long time now, internet retailers have willingly paid commissions to members of their “affiliate” program. Anyone can put a link on their webpage to a retailer and if someone clicks on that link and purchases something, the “affiliate” gets a percentage of the sale. The trick of course for the affiliate is getting people to visit their webpage.

FreePledge seems to have developed a rather compelling model. They have aggregated 165 online retailers (including such mainstream stores as Amazon, Staples and Target) and created a shopping portal. All of these stores pay FreePledge a commission on sales generated through their site. The hook is that FreePledge consumers redirect about 70% of the commission to the nonprofit of their choice. This isn’t chump change. Many of the affiliate programs pay commissions of around 5-10%. This means that by buying an item from Amazon through the FreePledge site, 5% of your purchase price goes to the charity of your choice.

What would happen if FreePledge became a dominant online shopping portal? Suddenly retailers who wanted access to the shopping traffic would have to pony up big money to charity. Telling consumers that they would donate a small percentage of their purchase to charity (a charity chosen by the retailer) just wouldn’t cut it. Instead, consumer/donors would have a new benchmark by which to judge cause related marketing efforts. If the retailer wasn’t donating at least 5% and giving the shopper the freedom to choose the cause, their cause related offering simply wouldn’t be attractive.

FreePledge is a for profit company. To me they are an excellent example of a for profit social venture. Sure, they are keeping about 30% of the commissions. But think of it this way. If they have 20% profit margins that means they are earning 6% of the commissions. If they chose a nonprofit structure and did not demand a return on their investment, they could reduce their share of the commissions by 6% and give 76% rather than 70% to the end nonprofit. However, they would lose access to expansion capital, the ability to attract employees who want to work on the for profit side (they’re headquartered in silicon valley) and potentially would not have found the courage to take the risks involved in launching a startup if it was not for the potential monetary rewards.

I signed up today.


  1. FreePledge sounds interesting. As a consumer I like to ensure that my giving goes where I intend it to go. Having choice increases my chance of shopping.

    In Australia many grocery stores run a token system. Dollars spent equate to recieving tokens to be distributed into giving boxes of local charities.

    Those token have a financial value that the grocery store then donates directly to the charity.
    Sporting groups always appear to attract the majority of tokens. Child sexual abuse rates low on the giving scale….except when I shop!

  2. Holden says:

    If FreePledge becomes a dominant force, companies will raise their prices ~5% so they can give the 5% to FreePledge. The model depends on people who would have gone straight to Amazon going through FreePledge instead, which is different (and raises costs for Amazon) relative to what Amazon is normally paying for: advertising.

    Giving to charity costs money. It always costs someone money, so if you want to give, you may as well be the one to spend (and choose). In the end you will be anyway (i.e., if you demand that the people who transact with you give to charity, they’ll eventually just charge you for your demand). There doesn’t seem to me to be any way around this …

  3. Jonathan says:

    Hi Holden, this is Jonathan from FreePledge.

    Your comment is right that there is a cost for retailers. However marketing and advertising cost money, a lot of money. The question is which is the more effective way to spend marketing dollars. Would it be 10% to all affiliates (affiliate marketing is big and not going away)? Or similar amount or more on inhouse marketing/advertising programs? Or 10% through a socially responsible channel like FreePledge.

    We think there are benefits for retailers to go social. There is added stickiness because of nonprofit angle, as well as the image factor. There are examples of companies that do well in integrating their business and nonprofit outreach, Target, Avon etc come to mind.

  4. Holden says:

    The question is whether FreePledge is drawing new consumers to companies, or simply being used as a portal to get companies to give more.

    Giving to charity can be a way to get attention, just like running a TV spot or a stunt. To the extent FreePledge provides this (i.e., brings in NEW consumers by grabbing their attention, not by plugging a charitable relationship as an actual reason to buy a certain product), it’s benefiting the charities.

    But any consumer who fancies that they’re helping the world by using FreePledge should consider that by the time they’re being purposeful about it, they’re asking that they be paid for paying. That part is the hocus pocus. There is some of both in the model.

  5. Anonymous says:

    Holden, I think that advertising is an embedded cost for all retailers. FreePledge is allowing consumer/donors to redirect a portion of those ad dollars to nonprofits rather than to advertising agencies. There’s no free lunch, but we know that consumers respond to cause related marketing campaigns. But these campaigns are relatively inefficient in delivering dollars to charity when compared to the FreePledge model.

    I wouldn’t be surprised if some retailers begin increasing the commission they’ll pay to FreePledge. Imagine if Staples was offering 15% to FreePledge (10% to charity) and Office Max was offering 5% to FreePledge (3.5% to charity). As a small business owner I can vouch for the idea that I would be compelled to at least try Staples if I was an Office Max customer.

  6. Holden says:

    And so Staples would gain an advantage by taking on higher costs. How do you think that would impact its prices? And the prices of anyone who followed suit?

    I almost never think that what I’m saying is black-and-white correct. This is an exception, pretty much. There is some nuance, but no real subjectivity … it is a matter of understanding economics.

  7. You’re assuming that all marketing dollars produce identical results. If FreePledge offers companies more volume per ad dollar spent than a cause marketing campaign, the companies will make more money by shifting dollars away from ad campaigns and towards commission payments.

    In addition, nonprofits will get a much larger portion of the corporate budget compared to the relatively small portion they get from a cause marketing campaign.

  8. Holden says:

    My statement applies specifically to consumers who purposefully try to manipulate companies into donating, whether through FreePledge or anything else.

    As I acknowledge above, using charity to get attention from people who otherwise wouldn’t even consider your product is advertising, like any other, and that is value added. So again, I’m not saying FreePledge is worthless. But it’s only useful to the extent that it’s *getting attention* rather than being used as a tool by consumers to get more donations going. To the extent that consumers say “I’ll shop through FreePledge because I am explicitly using giving as a criterion for what I buy,” they are going to end up being the donors.