By Tom Helsel
The first week working at Sattva in Bengaluru has been a busy one. My first day of work I had to leave early due to stomach illness, however on the second day I hit the ground running researching the Buy-One Give-One (BOGO), business model. I’d known of TOMS shoes and their business model for a few years, but I never fully understood their reasoning behind adopting a BOGO model when selling their product.
The BOGO model operates exactly how it sounds, for every unit of product that a consumer buys from a company, they in turn agree to donate the product to a person or community in need, often partnering with a third party in order to handle distribution of product. A BOGO model can operate on a local, national, or international level, depending on the product and business model of the company.
While the BOGO model directly distributes merchandise to areas of need, especially low income countries, it doubles as a tool for business marketing. Upon researching several businesses that use the BOGO model and the critical research on the model, I was able to conclude that businesses implement the BOGO model may be initially implemented for social benefits, but it also gives the company positive media and press benefits. Secondly, consumer loyalty is boosted, as customers who have a passion for the product and social incentives will continue to re-buy the product. Also companies implementing a BOGO model will attract customers, who simply want to be a part of a social mission, and therefore buy the product in order to fulfill social incentives. Finally, companies who operate with a BOGO model attract hard-working employees, who are motivated by their own social incentives, thus increasing the efficiency of the company. Although the company receives many positive effects from implementing a BOGO model, not all effects are positive.
By bringing in a free, superior, foreign good into a community, there can be adverse side effects to the local economy. These products are free; therefore, they have a tendency to, undermine the local producers, causing them to lose a substantial amount of business. Secondly, the community becomes dependent on the firm, as they rely on the free product to boost their livelihood. Additionally, if the company were to stop distributing to a certain area, then everyone in that area would be back to needing that product. Lastly, the company can experience negative effects as well. Unless the product is truly proprietary, as soon as the buzz around the new buy-one give-one product dies down, then the company will experience a drastic drop in sales.
TOMS shoes has recognized that the BOGO model may not be the best way to benefit a community, and has started to instead implement a buy-one give-something model.
This model is superior to the BOGO model, because instead of undermining local prices and being unsustainable, it can allow for a sustainable change to occur in the community. For example, TOMS has begun to finance the building of shoe factories using a portion of their profits. This allows the community to run the factory and supply themselves with shoes for a long-run solution. Another company that implements the buy-one give-something model is Panda Sunglasses, for every pair of sunglasses purchased the company donates one free eye exam from Optometry Giving Sight. Buy-one give-something business models often require partnering with distributers, or other third parties, in order to maximize the effect of the donation.
A less hands-on approach is opting to cross-subsidize profits. One company that implements this approach is Amazig Leathers. Amazig Leathers is a leather-goods company based in Morocco that donates 10% of their profits to a local community fund that supports education and economic initiatives. This donation directly improves the lives of the artisans who craft the leather, because it benefits their own community, the Imazhigen People. Cross-subsidizing is less hands on, however it has the potential to be the most sustainable, as it can finance long-term sustainable projects.
The BOGO model cannot only be implemented to help people in a struggling community, but also in order to boost sales of a company. While it is a simple model and therefore attracts many customers, it is not always the best way to help people in low income areas. A more sustainable and inclusive alternative may be the buy-one give-something model, or to cross-subsidize profits, as the giving can be tailored toward strategic philanthropy. One should be conscious of the end distribution when they buy a social product, as the outcomes may not be what they are perceived to be.