Consumer Philanthropy: Nonprofits Spend Billions to Reach Consumers

It's the nonprofits that are driving the message recognition - the branding - of philanthropic causes. And they're spending billions to do it.
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Never has the world of brands and consumer culture been more closely aligned with philanthropy - and the human desire to change the world for the better. World leaders, captains of industry, rock stars and mega-athletes. They're all embracing philanthropy in the new 21st century, bringing a "win now" mentality to the marketplace, and vowing to see to it that their dollars really do bring about change.

Consumer-oriented philanthropic messages are everywhere. From American Express's highly-polished Red campaign to the branding of as a beneficent (if for-profit) arm of the search giant, the world of brands and media and communications is suffused with appeals to our charitable instincts, or at least to our less charitable shopping mantra of doing well, while loading up the credit card.

From the explosion in philanthropy advertising and communications, you would think that the driving catalyst is the world of corporations and business, that charities and nonprofits are simply the beneficiaries of a growing movement to support them.

But you'd be wrong.

In fact, nonprofit organizations are spending big dollars on media, public relations, advertising and communications, according to exclusive research by Changing Our World, Inc., the parent company to onPhilanthropy, which I publish. In many cases, it's the nonprofits that are driving the message recognition - the branding - of philanthropic causes. And they're spending billions to do it.

Large American nonprofits spend at least $7.6 billion per year on marketing and public relations, and may in fact spend a great deal more, according to the Changing Our World analysis of 71 nonprofits with annual revenues of $10 million or more per year. Itemized examination of IRS Form 990 Line 43, where marketing and communications expenses reside, resulted in an extrapolated estimate of $7.6 billion for the sector.

Working from data specifically supplied by the Internal Revenue Service in response to a request by Changing Our World, researchers Susan Raymond, Ph.D., and Kate Jewell found that the total annual discretionary spending of U.S. nonprofits filing with the IRS with more than $10 million in revenue was $84.1 billion for 2005. The marketing and public relations figure is a subset of this line, requested but not required as a separate break-out by the IRS.

In today's hyper-competitive consumer marketplace, it costs a pretty penny to raise a buck. And it costs even more to create a sustainable consumer brand as a charitable entity, a permanent organization on the landscape.

And yet the data suggests that among the large "household names" in the nonprofit sector there is room for new entrants, big new brands willing to pay the price to create recognition.

In the study, researchers looked at a sample of 11 very large, national organizations. Overall, discretionary spending percentages conformed to our general conclusions that large nonprofits allocate double-digit percentages of expenditures to discretionary categories like communications, branding, and marketing. But when it comes to the market for providing those services to nonprofits, there is plenty of room for competition. In dollar terms, the top five contractors selling into the nonprofit sector rarely represented more than 25% of the discretionary spending. In other words, the big brands didn't spend a big percentage of the whole on a few advisors - as they do in the corporate world, where spending on big consumer brands dwarfs the smaller players.

That suggests that the stage may well be set for several major "product launches" in the nonprofit sector for philanthropies willing to spend now in order to raise - and serve more people - later. Going beyond the American Red Cross, the large single disease organizations, the handful of really large overseas missions organizations, and a few others - swimming with the big fishes - is attainable, the study suggests - when you look at how dispersed spending on marketing and communications is. (The growth of efforts like the Lance Armstrong Foundation's LiveStrong campaign and Susan G. Komen Breast Cancer Foundation are clear harbingers of consumer-oriented start-ups that make a big splash and scale quickly using good branding and marketing).

The research also shows that spending on marketing and communications varies widely across nonprofit sectors. Although discretionary dollars are high in total, the large hospital sector shows a small median in terms of line 43, where the IRS form lists marketing and communications costs; this is understandable because so much of hospital funds are spent on services. By contrast, some of the highest portions in this line item are in the arts (to be expected - arts organizations must attract the general public) and large human services organizations (somewhat surprising, but perhaps tied to events fundraising and major campaigns). This indicates strong competition for the dollar in those donor sectors.

Of course, measuring what nonprofits spend on line items is, at best, an inexact science; they are required to provide only the barest of minimums in accounting for expenditures. And how expenses are categorized by various accountants and harried nonprofit staffs can hardly be expected to be consistent across the board.

What's clear from the research, however, is that nonprofit spending on marketing - heretofore unmeasured -- is large and important subset of overall marketing spending. If we take $7.6 billion annually in spending for advertising, communications, public relations and branding and run that past other research data, what emerges is not an insignificant business sector.

For instance, total spending on public relations in the U.S. reached some $3.7 billion last year, according to Veronis Suhler Stevenson, a New York investment bank that specializes in media. Contrasts that with the total advertising spend of the largest consumer company, Proctor & Gamble, which spends $4 billion per year on advertising, according to the Economist, part of the overall $190 billion U.S. ad spend.

A few sub-specialties in consumer marketing also provide perspective. The fast-growing value of product placements in television shows and movies will reach $5.71 billion at year's end, according to PQ Media, a custom media research firm. Jupiter Research, which tracks online advertising trends, puts on online advertising -- display, classified and search engine marketing -- at $13.6 billion this year. Market researcher Classified Intelligence reports that the market for classified ads in the United States is $15.9 billion.

So while corporations are increasingly tying their brands to nonprofit causes, the nonprofits themselves are - in a way - increasingly competing with corporations for a consumer attention, and consumer dollars. Clearly, causes sell - they touch human emotions and create deep allegiances to experiences and quite possibly to products.

Marketers get this - and the numbers show rapid growth in execution of cause marketing campaigns. According to projects sponsorship consultancy IEG, Inc., cause-marketing spending will rise 20.5% this year to $1.34 billion - that means cause-marketing sponsorships are now outpacing sports sponsorships. Marketers spent $1.11 billion on cause-related sponsorships and activation last year, according to IEG research. The projected increase makes cause marketing the fastest-growing segment of sponsorship, outpacing the industry's overall growth rate of 10.6% to a projected $13.4 billion. According to IEG, specialty retailers, automakers, banks, financial services and non-alcoholic beverages lead the way in the increase in spending - and the evidence is everywhere on television, online, and in store displays.

Put cause marketing and spending by nonprofits together, and you've got a fast-growing $9 billion marketing sector that clearly justifies more attention from marketers and advertising companies.

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