Cause Marketing Regulations 101: What You Need To Know

Regulators are placing more requirements on companies that want to donate a portion of sales to charity. How might the latest cause marketing trends affect your promotions? Legal expert Rob Laplaca shares the big picture.


Robert Laplaca

Partner, Verrill Dana LLP

Who He Is:

Rob has a diverse law practice that focuses on advertising, promotion and marketing law and commercial litigation. Rob has 20 years’ experience representing promotional marketing agencies and major brands from concept through implementation on many types of promotions, including charitable sales promotions. He maintains a blog covering topics in advertising, promotions, and marketing at www.YouMightBeaWinner.com.

Q: Are most companies following all the relevant cause marketing regulations?

 
A: I’d venture that most, but not all, of the major brands are following cause marketing regulations. Cause marketing has become commonplace in recent years and most brands now know that there are a number of regulatory hoops that you need to jump through. But I still continue to get a surprising number of calls from larger companies that are not familiar with the cause marketing regulations, even though they have been doing cause marketing for a few years. I’d guess that smaller brands are not as familiar. Perhaps this may be due to the fact that their promotions may be more localized or smaller in scope. Many cause marketing regulations differ by state (with a number of states essentially having none), therefore, it’s more likely that brands that focus on local marketing activities may not be aware of the regulations.

Q: What is one best practice that companies and their nonprofit partners are taking today?

 
A: I think the one best practice in this regard is companies teaming up with nonprofits that complement their brand. As a few examples, Disney partners with Make-A-Wish; Starbucks partners with local growers; and FTD has partnered with veterans organizations to provide wreaths on veterans’ gravesites. When a brand finds nonprofit partners that “fit,” it typically produces a much greater financial benefit to the brand and the charities, since consumers are likely interested in both the charitable purpose and the brand already.

Q: Cause marketing regulations seem to be always changing. What cause marketing trends are you seeing?

 
A: Transparency and disclosure. While there are many regulations, the most basic tenet is for a company to ensure that the consumer knows exactly what the brand is doing. For example, “profits donated to charity” really doesn’t tell a consumer much, since consumers don’t know how much of the purchase price is “profits.” Most regulatory actions involve brands who were not upfront with consumers. I’d predict that future regulations will pertain to mandatory disclosures in ads and at point of sale concerning the specific dollar amount or percentage of the purchase price is going to charity—which is required in a number of states, but not all. And while no states currently require disclosure of post-promotion results (except in the registration states), there could be in the future some form of post-promotion disclosures as to money collected and donated to give consumers confidence that donations are truly being made.

Q: What can companies do to prevent cause marketing regulations from placing an unnecessary burden on charities?

 
A: Right now most of the burden is on the companies themselves. Charities generally have to take a hands-off approach and cannot be involved in actively advertising or promoting the campaign. To help lessen any burdens on the charity, companies should:

  • Ensure they are fully familiar with the relevant cause marketing laws,
  • Remind the charities of any separate obligations they may have (such as filing commercial co-venture contracts in a few states),
  • Inform the charities up front of any information they may have to provide to the company so the company can fulfill its obligations, including any registration requirements, and
  • Have a simple commercial co-venture form or licensing agreement that a charity can easily review.

Q: What are the greatest challenges for companies and their nonprofit partners with cause marketing law right now?

 
A: The biggest challenge to cause marketing in general is building credibility. Because, unfortunately, many consumers are skeptical about charitable sales promotions—questioning whether the money goes to the charities and the motives of the businesses—cause marketing efforts need to engender goodwill with the consumers. Studies show that while consumers want to help a cause, their biggest fear is that a cause marketing effort isn’t legitimate (or at least as rosy as it seems). To overcome this perception, companies need to make very clear and explicit disclosures that the promised donations are going to charity and may want to publicize the results of their promotions.

The biggest challenge with cause marketing law is the registration process for commercial co-ventures. Currently, six states require registration by companies for charitable sales promotions: Alabama, Hawaii, Illinois, Massachusetts, Mississippi, and South Carolina. When a company is unfamiliar with the registration requirements, they may avoid promotions in these states or decide to skip registration all together. Given the fact that regulators may believe that increased registration may lead to increased compliance with charitable sales promotion laws, we may see an increase in registration states, which would put even more of an onus on companies to familiarize themselves with these requirements if they want to do a nationwide promotion.

This article is provided as a resource, but does not constitute legal advice.

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