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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