TOMS: A quick look at socially conscious profit

Written on:June 27, 2011
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TOMS is a bright example of philanthropy, but is not a non-profit or a charity; nope, it is a for-profit corporation. Only this corporation has a unique twist: it has branded itself as a socially conscious organization. Now, many corporations do this sort of ‘branding’, but not quite like this; TOMS socially conscious branding is front and center of their brand rather than some side-story product of a public relations department.

TOMS has introduced a business-model slash movement dubbed ‘One for one’. The idea goes like this: for every one pair of TOMS shoes or TOMS glasses you buy, they will provide one pair of shoes or ‘sight’ to someone in need. Hence, ‘One for one’. This sounds simple enough, but let’s take a deeper look. This approach is interesting and different because it is very objective and concrete, whereas typically these types of promotions would read something like “a percentage of our profits will be donated to…”. Here, you know exactly what the result is in physical terms. And moreover, with TOMS it isn’t a temporary promotion, it is inherently tied into their entire business model, identity, culture, and branding.

As a student of economics, the TOMS business model brings me back to a thing called ‘loss aversion’. Wikipedia describes loss aversion as ‘people’s tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains.’ As applied to TOMS, it is pretty much saying that people will more readily pay $70 for a pair of shoes than they would pay $25 to help someone but receive nothing, even though the overall loss is greater in real terms, it is lessened in the perception of the gain. In other words, you’re paying $70 to receive a pair of shoes worth $45, thus losing $25. This is a way of building the loss of a charitable donation into the perception of the gain of the shoes they receive. The ‘concreteness’ of the philanthropic result also helps lessen the psychological power of the ‘loss’. It also provides the buyer a sense of pride when wearing the shoes (or the sun glasses) because they have a story behind the purchase, not just of viral marketing when telling the story to friends, but it can stand to represent that the wearer is socially conscious thus identifying with the brand itself.

Another topic of interest with this model is ‘sustainability’. A business can adapt quicker and diversify itself better than a non-profit could. Plus, a business is in the business of providing goods/services that people were already going to spend money on anyway. As an example, if someone knocks on your door and asks you to give a $25 donation to a charity, you weren’t already planning on that expense. Whereas you are guaranteed to need a new pair of shoes every now and then, and budget that expense accordingly. TOMS is building in the $25 donation into an expense you’ve already budgeted for, or at least that is what I see as the power behind this approach and why I find it so interesting.

Now, I don’t think this precise formula will work across the board in every industry or every business etc; but I do think it opens the door for businesses and entrepreneurs to start thinking this way. This concept of corporate philanthropic culture can also have an impact on employees, who might find themselves happier working for a company they know makes a real difference; not to mention they would likely work for less relative pay in this situation. Socially conscious profit will increasingly become a more important and powerful business model, and I personally think it will have a heavy influence in shaping the future relationship between economic and social progress.

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