The Sparo Whitepaper
What is the Future of Retail?
Help Shoppers Change the World
War in Ukraine. Climate disaster. A resurging pandemic, poverty, hunger, racial injustice…It’s 2022 and we are aflame in crisis. The time to stick our heads in the sand has run out.
Companies have long stepped up to help the world. What’s different now is that doing the right thing is not an option; it’s a business imperative. Anyone who wants to win in today’s market, must weave responsibility into the entire fabric of their company and bring their customers into the mission.
A Quick Look at How We Got Here
The idea of businesses having a social component goes back to the orphanages and asylums of ancient Rome. It wasn’t until the 1950s that the concept of Corporate Social Responsibility (CSR) started to gel around the philosophy that business has an obligation to the society around it. It was during the social upheaval and protests of the ‘60s–which had its own version of cancel culture against companies viewed as part of “the establishment”—that CSR began to be talked about as a way to bolster brand reputation and, in turn, economic returns. “Triple bottom line” entered the CSR lingo in the 90s, referring to a specific business plan in which a company balances its social and environmental goals with its financial ones, also fondly known as “people, planet, and profit.” More recently, CSR has been seen as a strategy to improve a firm’s competitiveness.
Cause marketing, which keys in on that relationship, falls under the CSR umbrella. Many point to American Express as giving birth to the term in 1983 when the company donated a penny to restoring the Statue of Liberty every time someone used its charge card. Not only did the campaign raise over $1.7 million to spruce up the Green Lady; but Amex card use rose 27%.
Today, CSR varies from company to company, and can mean everything from ethical behavior to philanthropic programs to employee volunteerism. But over the last 15 years, with the blooming of data for everything—from the number of calories you burn walking to the mailbox to how many eyeballs gaze at a post—both customers and investors started demanding that companies provide metrics of their good citizenry. And that’s given rise to the adoption of Environmental, Social & Governance (ESG), which calls for brands to quantify how they’re achieving climate change goals, responsibility to their community and diversity, equity and inclusion within their company. Like CSR, ESG is considered essential for a strong business.
That’s because now, more than ever, consumers care how brands behave socially and environmentally. Over the last five years, shoppers surveyed by various firms have said the following: 77% are more willing to buy products or services from companies that show they’re making a positive impact, 66% will switch from an item they typically purchase to a new item from a purpose-driven brand, and 71% of millennials will pay more if they know some of the proceeds go to charity.
But intention matters. Modern shoppers are quick to cut through PR-driven actions and marketing hype: While 43% of Americans in 2022 said companies, along with the government, should be more responsive in supporting Ukraine, when asked about the businesses that had made efforts? 49% felt they were largely performative and inauthentic. To that end, they do their due diligence. In a 2017 Cone Communications study, 39% of Americans said they researched a company’s business practices or support for social and environmental issues. And three out of four millennials said when a company takes a stand on a social or environmental issue they will investigate to make sure it’s authentic.
Do CSR and ESG boost sales?
"Corporate Social Responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it because it is good for our business." – Niall FitzGerald, former CEO of Unilever
AmEx’s campaign with the Statue of Liberty was a clear example of a CSR effort that raised profits. And many successful companies—from Warby Parker to Patagonia–have built outstanding brands around doing good. Because CSR and ESG vary from company to company, it’s hard to pin down their effect on sales. But a growing body of research suggests that done well, they boost the bottom line.
A meta-analysis of 52 studies on corporate virtue in the journal Organization Studies showed that social responsibility and, to a lesser extent, environmental responsibility is likely to pay off. Similarly, an exhaustive analysis of about 22,000 studies, found that in 63 percent of them ESG had a positive effect on corporate financial performance. A 2019 McKinsey report broke down how that can play out. A strong ESG program creates value for the company in a number of ways, according to the analysis, and they include reducing regulatory intervention, wooing talent, motivating employees with social credibility—and attracting customers.
How specifically do CSR and ESG affect consumer behavior? In one experiment published in the Journal of Consumer Research, 56 volunteers were given a plastic cup of wine to taste. They each got a description of the winery it came from. Some of them were also informed that the winery donated 10% of its sales revenues to the American Heart Association. When asked how they rated the wine on a scale of 1 to 9, the volunteers who were informed about the charitable donations gave significantly higher numbers—5.70 compared to 4.24. The authors attributed the difference to “the halo effect, whereby consumers’ evaluation of the company’s moral behavior influences the way they perceive the functional performance of its products.” In another 2019 study published in Economic Research researchers interviewed 400 grocery store shoppers in Spain and found CSR increased the perceived value of a company and loyalty to it.
Surely, there are a lot of people who could care less how a brand behaves; they just want to buy the product. But for a segment of consumers it matters a lot–and that arguably translates into sales. A 2001 study in the Journal of Consumer Affair based on deep interviews of people on the street, found that for a fifth of them a company’s CSR strongly affected their purchasing behavior. “This group are often willing to switch brands or stores and even willing to pay a little more to make purchases that they consider socially responsible,” the authors wrote. By 2017, the number of those consumers had more than tripled, according to the Cone Communications survey: Among the 1,000 Americans questioned, 87% said they’d purchase a product because its company advocated for an issue they cared about.
There’s a flip side, too, and it has implications for how companies can lose sales. In that same survey, 76% of shoppers said they’d refuse to buy “a company's products or services upon learning that it supported an issue contrary to my beliefs.” And about half of those people they’d acted on those feelings in the past year—deciding to buy, or not to buy, something based on the brand’s social behavior.
Meet the New Customer
Gen Z, wired with activism and quick-tempered cancel culture, is driving these trends to a whole new level, pointing the way for the next wave in retail. Few businesses can afford to ignore them.
This is a demographic with $360 billion to spend and very different ideas about only they’ll do it. With the youngest of them being 10 years old, their consumer power only promises to increase in the next few years. Meanwhile, they’re attitudes have already trickled up to their older generational neighbors. Together, these consumers represent a significant force: More than half of the population in the U.S. now are millennials and younger.
Gen Z is the first generation to never know life without the internet. Digital natives who grew up with a phone in their hands, they live and breathe social media where the sense of belonging is strong and the criticism swift. Coming of age on TikTok and Instagram is very different from watching ads on TV. Not only will a company’s misstep rip through millions of minds in minutes; young users see influencers, often their peers, partner with brands–and they want that kind of relationship for themselves. They don’t want to be sold to; they want to belong. Nearly 1 out of 4 say that what would most motivate them to advocate for a brand online is “the feeling of taking part/being involved.”
Rihanna’s $1.4 billion company Fenty Beauty understands this new dynamic. When the brand threw its weight behind the Black Lives Matter protests in 2020, it did Instagram Story takeovers, letting activists and fans share whatever message they wanted — no mention of products required. This wasn’t a campaign directed at their community; it was with it.
Making social impact, in fact, is a key driver for Gen Z consumers. Although the push for change is often led by the young, as a generation they stand out as activists, passionate about issues like climate change and racial justice. Again they see business as their partner—an idea that’s catching on. Not only do 88 % of consumers ages 18-34 year olds say, “It is important to me that companies I buy from align with my values,” according to a 2020 report by 5WPR. But in a 2018 Futerra survey, 88% said they want companies to help them make a difference.
When Deloitte questioned nearly 23,000 Millenial and Gen Zees in 2021, it found that these consumers “often put their wallets where their values are, stopping or initiating relationships based on how companies treat the environment, protect personal data, and position themselves on social and political issues.”
The question for companies who want to woo these customers becomes personal: How can you help them make a difference when one shopper is focused on climate change while another is obsessed with social justice and a third only cares about school shootings—or hunger or curing cancer or refugees? How do you partner with an audience in making the world better when each shopper is passionate about a different cause?
The Choice Model
TOMS is an interesting case study. It famously put “one-for-one” giving on the map in 2006—buy a pair of shoes, give one to children who need them–and companies like Warby Parker and Bombas followed. But after struggling financially for years, in 2019 TOMS nearly went bankrupt. After going through some leadership changes, it dropped the donation model. What had been attractive 13 years before—the simplicity of buy one, donate one—no longer appealed to shoppers used to personalizing everything; many just didn’t care about people who needed shoes in a world reeling from school shootings, climate change and police killings. So in a new drive to attract Gen Z, TOMS kept its commitment to give back, but shifted to donating a third of its net profits to different charities—issues like mental health and gun violence that shoppers themselves chose during an initiative the company ran. "The consumer is more savvy than ever; they're more engaged than ever; they're voting with their wallets," Chief Giving Officer Amy Smith told Fashionista at the time. "The combination of Toms wanting to do as much as we could in a way that was aligned with the passions of our consumers, we really started to wrestle with this idea of: Maybe it's time to evolve a little bit and maybe it’s time to do more than just our one-for-one giving."
Along those lines, a new model is emerging in retail, one that is transforming the old tradition where the founder, board or CEO, even the CEO’s wife, decides what cause a company will support. The new concept empowers shoppers to direct a brand’s donations every time they make a purchase. Probably the best known example is AmazonSmile, launched in 2013 where, for eligible products, the company donates 0.5% of each sale. By September 2020, the program had given $215 million to the charities its customers selected.
It’s hard to know the impact of this model on a company that did $469,822 billion in sales, with a net income of $33 billion in 2021. But using candy and calculators, researchers at the University of Miami and the University of South Carolina explored the underlying psychology of why a model like this works. One experiment took place at a roller skating rink. As adults approached the concession stand, they were told that if they bought a popular candy, all of the money would go to the charity. Half the customers were allowed to select which particular nonprofit the candy money would go to. The other half were told that the rink would pick it. And all of them got to decide how much they’d pay.
What happened? The customers who could choose the nonprofit, paid three times as much for the candy.
In a second study, university students were told about a company that was giving 5% of proceeds from each calculator sale back to the community. Only some of the subjects learned they could choose the charity. When the students were then asked if they’d buy a calculator, the group with the option to choose their charity were more likely to say yes.
Interestingly when the researchers looked deeper, they found that it wasn’t the particular charities that inspired the customers to spend money; it was the act of choosing that enhanced their personal role in helping the cause. In other words, not only did they get a lift from shopping; the whole experience of participating with the brand to make a difference, left them feeling good about themselves. Imagine technology that can amplify that uplift moment for customers by giving them a dashboard where they can see instantly how their shopping has made life better for someone or benefited the planet. Or maybe it helps a retailer feature real-life stories of those helped by the donation on the site.
More research is needed on how this giving model directly translates into boosting customer acquisition and loyalty, decreasing cart abandonment and increasing sales. Meanwhile, the tech will have to help retailers support causes that align with their brand while offering customers as many options as possible.
But brands that take the leap have an opportunity to connect with the passions of GenZs and millennials and to bond with them in the way few businesses have before, in the way they crave. It’s a collaboration that can transform everyday shopping into an authentic force for alleviating misery and desperation and for making the world a better place.
And where business meets humanity, isn’t this, really, the bottom line?
Curious about retail donation solutions and giving technology—and why they’re good for business? Read our whitepaper, listen to our podcast, browse our blogs, and more…
How It Works
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