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NOT A “ONE-FOR-ONE” WAY STREET
Ways in Which the One-for-One Business Model Can Improve in Regards to Long-Term Longevity and Increased Societal Impact
Addressed to: TOMS and other One-for-One Business Models
Written By: Morgan Machado
TABLE OF CONTENTS
Executive Summary……………………………………………………………………………………………………3
Increased Demand for Businesses Structures Focused on CSR………………………………………………4
Where the One-for-One Model Comes In…………………………………………………………………………5
The Problem…………………………………………………………………………………………………………….8
How the Model Can Lead to Success……………………………………………………………………………..12
Policy Solution………………………………………………………………………………………………………..14
Conclusion…………………………………………………………………………………………………………..…16
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EXECUTIVE SUMMARYIn a society with ever-increasing awareness for societal issues, there
comes the quest to corporations to pair simplicity and tangibility of societal
impact with profitability. From this quest emerged the now widely adopted
one-for-one business model; its modernizer the well-known shoe company
TOMS. The initial idea stemmed current CEO Blake Mycoskie’s trip to
Argentina, where he witnessed the hardships children faced growing up
without shoes. Humbled by the experience, Mycoskie sought to create a for-
profit business that would be sustainable and un-reliant on donations. His
solution? Simple yet revolutionary. The company’s coined one-for-one model
functions exactly as it sounds—for every shoe a customer purchases, a shoe
is given to a child in need. This model extends beyond shoes and has been
infiltrating a variety of markets—“NouriBar donates a meal for a hungry child
for every nutritional bar it sells; KNO Clothing gives away clothes and
donates to homeless shelters; Soapbox Soaps donates a month of water, a
bar of soap, or a year of vitamins for each soap product it sells, and so on”
(UPenn 2016).
The exploding consumer demand for corporations that are socially
responsible makes the buy-one-give-one model the here, the now, and the
future. While this simplistic and seemingly-pristine business model may
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seem immaculate on the surface, it has taken a lot of heat from economists
in regards to the real societal impact of its one-for-one structure. Economists
and skeptics have questioned its operative feasibility and longevity, as well
as the true long-term societal impact. This literature proposes that there is
room for improvement within the one-for-one model and lays out potential
solutions to mend these structural flaws.
INCREASED DEMAND FOR BUSINESS STRUCTURES FOCUSED ON CSRIn the wake of the millennial generation comes a newly placed
emphasis on Corporate Social Responsibility in regards to brand perception.
The largest cohort the United States has ever seen, millennials number over
80 million Americans and are the first of many generations to be raised
alongside CSR. A generation that is “always connected”, millennials are
consistently updating their lives via various forms of social media and now
hold companies up to the same standard of doing the same. In a society of
rapidly developing technology, information is more accessible to the general
public and it is easier to delve deeper into information regarding operations
and commitments. Not only are millennials today’s consumers, but they are
tomorrows leader’s and have the potential to shape the way business’s
operate. Surveys show that, when asked whether or not a company’s
dedication to CSR would influence a variety of different personal decisions,
84% of millennials responded yes to what they buy or where to shop, 78%
responded yes to where they choose to work, and 82% responded yes to
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which products and services they would recommend to others (Cone
Communications 2013).
Research has shown that increased emphasis being placed on CSR
expands beyond the millennial generation, and the demand for aligning
purchases with values has reached a significant and growing portion of
consumers. According to a demographic study of “Cultural Creatives”
conducted by the Natural Marketing Institute, this subgroup “is roughly
estimated at 68 million adult Americans who make purchasing decisions
based on their personal, social and environmental values” (EcoOfficiency). In
addition, 86% of consumers said, assuming that price and quality are held
equal, they would switch from their current brand to a brand that is socially
responsible.
“More than 88% of consumers think that companies should try to achieve their business goals while
improving society and the environment” - Forbes
To supplement the increase in consumer demand to support business
models that create social value, there has been an overall increase in for-
profit social entrepreneurship within the business landscape. In addition,
socially responsible investing has developed in both public and private
markets and has evolved to become an institutionalized sector of the
professional asset management market. However, there has been a
reluctance by entrepreneurs with long-term visions for social and
environmental responsibility to accept outside capital from investors in fear
of conflicting interests. While there has been a growing marketplace for for-
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profit social entrepreneurs, the current legal framework of this marketplace
is structured to reward profit maximization as opposed to social
responsibility.
WHERE THE ONE-FOR-ONE MODEL COMES IN The question then becomes, how can companies structure themselves
in such a way that capitalizes on this increasing demand for value-driven,
mission-oriented businesses? This is where the one-for-one business model
comes in. Both widely embraced and criticized, this model strives to create
both commercial and social values for consumers and businesses alike. The
model operates exactly as it sounds—for every product purchased, a product
is given to someone in need. Most commonly implemented within consumer
products industry, these products allow consumers to express their
individualism and unique style while simultaneously aiding conversation
between customers regarding their own buy-one-give-one experience.
An idea that began with Mycoskie’s design of a shoe to fit the common
Argentinian alpargata, the success of the company TOMS encouraged other
social entrepreneurs to replicate the business model. In addition to the social
value it creates, the one-for-one structure capitalizes on intangible benefits
that are not accessible to other traditional businesses. Compared to
traditional cause marketing companies that donate a set percentage of sales
to a cause, the societal impact associated with the buy-one-give-one
proposition is clearer, easier to comprehend and more personal for 6
consumers. In the case of TOMS, the company doesn’t just sell its shoes to
customers—it fosters an environment for which its consumers can tell a
story. And according to recent surveys, this is what consumers in the
marketplace are looking for. Adobe conducted an online survey that reached
1,250 adults who were 18 years of age and older. This population sample
included 1,000 people within the general population and 250 marketing
decision makers. The study found that among the 1,000 people not involved
in marketing, they all wanted a brand that had personality and that would
reach them on some sort of emotional level (Adobe 2014). The online survey
results are depicted in the chart below (See Figure 1):
Figure 1: Forbes
Logistically, the buy-one-give-one model must take into account both
pricing and cost considerations, in addition to varying types of donations. In
regards to pricing, businesses that operate on the one-for-one business
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model must first take funds for donations into consideration. These
companies can extract this cost from profits in one of three ways- either by
finding ways to reducing operating costs, charging a premium price, or
accepting a lower profit margin in hopes that the underlying social cause will
lead to increased sales. Companies that follow this structure tend to be most
successful financially when the product is either market up or the company is
able to reduce operating costs by going direct-to-consumer and bypass
expensive indirect retail channels (See Figure 2).
Figure 2: (Marquis and Park, 2014)
One-for-one businesses can vary in structure, depending on the
manner in which they choose to donate the products. Some produce the
donated item themselves and partner with a non-profit organization to
distribute the product, whereas others match the equivalent funds for a
single product for their partner organization, who then sources and
distributes the product. While most businesses who adopt this structure 8
adopt a literal one-for-one donation, a business could choose to donate cash
or a completely different product altogether.
THE PROBLEMAs more and more businesses infiltrate the marketplace with this one-
for-one structure, the more skeptics begin to question the long-term viability
and societal impact associated with this type of giving. To start, much of the
success surrounding these buy-one-give-one social entrepreneurs stems
from their originality. This means that as more and more companies infiltrate
the market, the novelty wears and the benefits of the model will likely
diminish. Easily replicable, it will become increasingly difficult for consumers
to differentiate between these for-profit companies. And with companies
replicating the exact same “feel good” return, it could very well be that the
one-for-one business structure is not sustainable in the long run. The
sustainability of the one-for-one business model also faces problems with
scaling up the donations side to keep up with consumer growth and sales.
For example, company Baby Teresa— a company that sells baby clothes and
donates baby clothes to those in need— ran into problems when sales were
outpacing its ability to recruit their heavily relied upon volunteers (Marques
and Park 2014).
As these companies grow and expand, their responsibility to ensure
that their recipients’ needs are being met grows as well. This leads to the
second, more external consequential flaw of the buy-one-give-one model—
the potential for negative long-run societal impact on these developing
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countries. Various different studies indicate that donations have the potential
to do more harm than good. As a result, development and relief
organizations who provide developing nations with in-kind donations have
been facing criticism from economists regarding the negative impact on
retailers and producers in the local markets. Economically speaking, shipping
shoes, eyewear, and handbags free of charge to impoverished nations has
the potential to hinder development and create long-term dependency. In
response to Jason Sadler’s “I Wear Your Shirt” advertising company, a recent
Times article addressed that “flooding the market with free goods could
bankrupt the people who already sell them” and many African textile
industries crumbled during the 1970’s and 80’s under the weight of
secondhand clothing imports (Wadhams 2010). A 2008 study conducted by
Garth Frazer regarding textile donations in Africa reported that used-clothing
imports were the cause of a “40% decline in African apparel production and
roughly 50% of the decline in apparel employment” (Frazer 2008). African
policy makers criticized this large influx of clothing, stating that it was
harming their domestic garment industries. The Garth Frazer study
established that the imports from used-clothing were responsible for about
39% of the decline in apparel production annually in sub-Saharan African
countries and were responsible for approximately half of the annual decline
in apparel employment (Frazer 2008).
This trend is also apparent in countries like Uganda, where markets in
Kampala are filled with American sports jerseys, European made clothing,
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and other Western cast-offs. this starts with North American and European
countries who make money by offloading and dumping donated clothes that
they can’t sell. What appears to be a win-win situation for all parties involved
— developed countries receiving revenue for the clothing and Africans with
weak purchasing power receiving quality clothing at a low price— actually
prevent these countries from establishing or sustaining their own clothing
industries. According to a recent 2006 report, “textile and clothing
employment in Ghana declined by 80% from 1975 to 2000; in Zambia it fell
from 25,000 workers in the 1980s to below 10,000 in 2002; and in Nigeria
the number of workers fell from 200,000 to being insignificant.” (CNN Article
2013) This report indicates that second-hand imports maintain the status
quo within these countries; in other words, it does not help the poor get
richer. It just keeps things where they are. While not quite the same as the
buy-one-give-one model, the societal impact and unintended consequences
associated with it is pretty much equivalent.
While yes, one could argue that it is much safer for these children to
be running around without shoes, TOMS fails to address the underlying
reason these children were without shoes in the first place; their local
communities lacked the economic development, health and sanitation
necessary to do so. More specifically, an experiment was conducted in a
region of El Salvador to test the societal benefit of TOMS’ shoes in tandem
with the company’s mission. 979 households were observed— two out of the
four communities were given a pair of children’s shoes at the beginning of
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the study and the remaining two were given a pair of shoes at the end of the
study. Both groups received coupons that could be used to purchase shoes
at a local market of their choice. The study showed that there was in fact a
reduction of shoe purchases for the families that received TOMS’ shoes. Yet,
the difference failed to reach statistical significance, and therefore does not
present conclusive evidence on the issue.
However, after taking a closer look at the results of this experiment,
one might reach a different conclusion. In all the regressions displayed, the
impact’s “point estimate” is negative across the board. In other words,
receiving free shoes had a negative impact on future shoe purchases in the
local markets. While the negative impact may not have been exponentially
large, the studies show that there was in fact traces of negative correlation.
TOMS, the most well-known and widely recognized of the one-for-one
business model, has been taking the brunt of the heat from critics. During its
campaign “One Day Without Shoes”, the blog Good Intentions Aren’t Enough
launched a counter-campaign called “A Day Without Dignity” (Olenski). While
the company is crystal clear about its intentions, it is not so clear on the
production of the shoes and the origins of its product. While the TOMS
website mentioned that shoes are produced locally in places like China,
Argentina, and Ethiopia to increase income and jobs in these areas, there is
little detail on their manufacturing practices. When asked about TOMS’
sustainability practices, Mycoskie fails to address the environmental and
ethical factors that are associated with the movement.
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“For us to truly say we are sustainable, we have to not only build a business so we are allowed to
continue to give shoes by selling shoes, but we also build profits so if we have a bad season, we can continue to give shoes”- Blake Mycoskie, CEO of
TOMS Shoe Company
Proponents of the one-for-one business model argue that the idea of
donations fostering dependency is situational. Yes, at times distributing free
goods and services can create dependency. But, like anything, that is not
always the case. Take free vaccines for example. Vaccines are a public good
that make people who receive them healthier and indirectly diminish lost
productivity. Donating food has the potential to be extremely beneficial,
however, if it is distributed to the “wrong places” — i.e. donating mass
amounts of rice to areas that depend on producing and mass selling large
amounts of rice — it can undoubtedly have an adverse effect.
In a quest for self-satisfaction, is this structure put in place to generate
social value merely exploiting the very people it aims to serve? Although the
one-for-one business model was implemented with the best of intentions, it
may be undermining the development of local businesses in underdeveloped
regions. Based on the research presented, it seems that the charitable act
of, say donating a free pair of shoes, serves as merely a temporary
alleviation of a problem that is interwoven within a system that is in need of
complex, long-term economic development, education, sanitation, and
health solutions. It is critical to pinpoint the negative consequences
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associated with this model in order to determine more effective ways to
maximize the societal impact of giving to communities in need.
HOW THE MODEL CAN LEAD TO SUCCESSSince it is not clear what approaches have the greatest long-lasting
effect on sustainability and impact, there has been a lot of innovation and
experimentation associated with the one-for-one model. In light of the
criticisms this model has faced, a few buy-one-give one companies have
been proactive in adjusting their structure to maximize positive societal
impact. In response to recent lash back from economists and journalists,
TOMS has worked to broaden its impact and minimize negative spillovers.
TOMS now uses its platform as a well-known shoe company by partnering
with Giving Partners, an organization that is an expert in water sanitization
and hygiene, “to help create sustainable water systems in seven countries”
(toms.com). Embedded in their webpage, a section is dedication to
explaining how the company goes beyond the one-for-one business model by
working to manufacture and source to create jobs in the countries they give,
establishing research to identify more needs for future products, and
investing money in teams to support the eradication of diseases.
In addition, TOMS has made it a new mission to produce one-third of
the shoes it produces in the countries to which donates to. Shoe
manufacturing today has made its way to
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Figure 3: TOMS.com
Kenya, Argentina, China and Ethiopia (See Figure 3). Now, not only do they
sell a shoe for profit and donate a portion of that profit to a shoe for a child in
need, but they also seek local organizations that have a long-term
commitment to these under developed regions where they work and partner
with them to make a difference. Blake Mycoskie states that “TOMS welcomes
the opportunity to join forces with incredible organizations around the world,
whose integrated approaches across health, education, and other service
sectors allows us to provide a valuable link through TOMS giving”
(toms.com). A story was posted in 2014 regarding TOMS’ partnership with
Visualiza Eye Care Center located in Guatemala City, known for providing
high-quality eye care to people in need. Initially, their fees were subsidized
by Visualiza’s private sector. With the help of TOMS Sight giving, a doctor
and his team were able to reach deeper into local areas to find those who
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were either unaware of the resource or could not afford it (Figure 2,
Appendix).
TOMS has also recently worked to maximize the benefits of society as
a whole and minimize harm by moving production and working with local
organizations, but they have also added a section called The MarketPlace to
their website to help other social entrepreneurs to develop their businesses
and keep the trend going. Instead of fearing this would increase competition
and focusing on the potential profitability of their individual company, they
complied with utilitarian ethics through impartially and put overall society
wellbeing over their own selfish agendas. This hub allows other social
entrepreneurs, dedicated to sustainability and creating value, to promote
their businesses and causes they support on the TOMS website. At the
bottom of the page, there is even a quote that reads, “This is bigger than us”
(TOMS.com) and links directly back to the optimization of net societal gain
that is addressed at the heart consequentialism. Their willingness to shift the
attention away from their company and spotlight others on their own
advertisement channel shows their goal to eradicate pushing individual
agendas and focus instead on the net benefit to society as a single entity.
POLICY SOLUTIONWhile in need of improvement, the one-for-one business model shows
that there is a great deal of innovation going on within the business realm
and that more and more businesses are engaging in ways that provide
societal benefit. Companies like TOMS have been taking a step in the right
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direction by revising their business models in a way that significantly
reduces the unintended negative consequences the simplistic buy-one-give-
one climate creates. Yet, TOMS and other one-for-one companies can do
even more to improve their structure. Thus arises the proposition to alter the
“buy-one-give-one” approach to a “buy-one-teach-one” approach.
The idea stems from the company Warby Parker’s alteration of the
model. The company sells eyewear, charging for the eyeglasses it “gives
away” in 35 different countries. Warby Parker attracts customers who are
both socially conscious and fashion-focused. For every pair of glasses sold,
the company makes a monthly donation to their non-profit partners. The
monetary donations made for every pair are funneled into training people in
these countries to administer basic eye exams and sell glasses in the
“donation” regions. These trained men and women then work to spread
awareness and make eye care available within their communities. Warby
Parker recognizes that donating is only a quick fix that is rarely sustainable
and can foster a culture of dependency. By working with partners to train
individuals to sell eyewear for affordable prices, the company has increased
productivity by 35% and increased monthly income by 20% with every pair
of frames sold in these local areas (Warby Parker Website).
“By charging [for glasses], you make a needy beneficiary into a responsible customer. It treats
them with greater dignity” – Neil Blumenthal, CEO of Warby Parker
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While Warby Parker is a value driven business with a mission to create
societal benefit, it does not establish itself in the market place as just that. In
order to reduce its susceptibility to the easy replicability of the one-for-one
model, the company establishes itself foremost as a fashionable, high-end-
yet-affordable brand.
Therefore, going forward, TOMS and other for profit businesses should
move away from merely donating physical items, for the lasting impact of
this transaction can have adverse consequences on local communities. TOMS
should switch its efforts from a “product purchased, product given”
exchange to a “product purchased, product taught” exchange. Instead of
giving a shoe to someone in need for every shoe purchased, TOMS should
give local businesses the capital they need to provide cheaper, more
affordable shoes. One-for-one business models should shift their missions
from simply giving, to giving with a purpose.
CONCLUSIONA model that is seen as a great way for companies to get involved and
act as agents of change, the buy-one-give-one structure has the potential to
become a powerful platform which merges both social mission and high
profitability potential. This generation has become increasingly more
responsive to companies who support social causes, meaning the future that
is in store for the one-for-one business model is looking bright. However, as
this business structure increases in popularity, consumer impartiality
between businesses will pose to be a problem. In order to combat this
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problem, companies who follow this business model must be aware that the
authenticity of their mission and the quality of their product will become
paramount. In addition, as consumers and social entrepreneurs of “socially
conscious products”, it is important to be aware of the true impact these
purchases have. Going forward, this model can expand its lasting impact by
not only giving, but teaching as well.
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EcoSalon. N.p., 07 Mar. 2012. Web. 11 May 2016.
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Marquis, Christopher, and Andrew Park. "Inside the Buy-One-Give-One Model." Stanford Social
Innovation Review (2014): 28-33. Web. 11 May 2016.Olenski, Steve. "Dear Brands, Tell Us A Story - Love Consumers." Forbes. Forbes Magazine, n.d.
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