Charities and cause-related marketing - commercial participators
Ensuring your cause-related marketing arrangements are transparent and comply with the law and good practice.
There are many promotions that you may come across in your day-to-day online shopping sprees or in supermarkets that come with an added bonus which says that the price of an item includes a small donation to a good cause. This year particularly there have been many such promotions related to the cost-of-living crisis to help families who are experiencing food poverty. We can expect to see more in the run up to Christmas.
Such cause-related marketing can be a hugely effective way for charities to raise awareness of their work and generate much-needed income. However, as with many types of marketing activities, these partnerships must be carefully managed to avoid misleading the public or breaking the law. It is important to make clear how much goes to a charity from the sale of a product and know the regulations on 'commercial participators' well. Charities that fail to meet their obligations risk attracting negative publicity and the attention of the Charity Commission and other regulators, as well as alienating supporters.
What is a commercial participator?
The term is defined in section 58 of the Charities Act 1992 (the 1992 Act) but essentially a commercial participator is a person or business promoting the sale of goods or services on the basis that part of the price will go to a charity or a philanthropic or benevolent organisation (the charitable institution) or that a donation will be made to it.
The charitable institution gains income from the sale of the product concerned and an opportunity to raise awareness of its work. The corporate partner has the chance to increase sales, to generate goodwill from its association with the charitable institution, and to support a good cause.
What obligations apply to such partnerships?
A full treatment of the issues arising from commercial participator agreements is beyond the scope of this blog. Key obligations include the following:
- A commercial participator must have an agreement with the charitable institution before it begins to promote the partnership
- The agreement must contain information specified in the 1992 Act and associated regulations
- As well as the details of the parties, a description of the partnership and some other practical provisions, the agreement should specify how potential buyers will be informed how much of the money they pay will go to the charitable institution concerned
Have you made clear how much will go to the charitable institution?
It is not always easy to agree exactly how a corporate partner will make a statement (known as the section 60 statement) to potential customers explaining what contribution will go to the charitable institution.
At the point of sale, there should be a statement which includes the 'notifiable amount', that is, in essence:
- The amount donated for each item sold (eg '20p for every purchase of selected fruit and veg sold will go to Charity X')
- The total amount to be donated as a result of the promotional venture
The legal requirements can be met easily by a statement such as the above. However, it is not unusual for a statement to be less precise than it should be, as it's likely that a corporate partner will be concerned at the risk of making a loss if the volume of sales is lower than planned and both parties may be reluctant to solve this problem by choosing an unattractively low level of payment to the charitable institution. Common problems include:
- The use of vague or ambiguous phrases such as 'proceeds', 'all proceeds' or '10% of profits' without further clarification
- The failure to include the estimated amount to be paid to the charitable institution over the life of the promotion
- A failure to ensure that the estimated payment is calculated as accurately as is reasonably possible in the circumstances
What other terms should a commercial participator agreement include?
As well as having a clear 'section 60 statement' in a commercial participator agreement, both the corporate partner and the charity are likely to want to include other terms such as:
- A licence of the charity's trade mark
- Warranties that use of the charity's branding by the commercial partner will not infringe third parties' rights
- Assurances from the commercial participator that it will not do anything that damages the charity's name and reputation
- Brand guidelines
- Rules on data sharing
- Provision for the disposal of unsold stock bearing the charity's brand
- An obligations to comply with the Code of Fundraising Practice
A clear, concise and compliant section 60 statement is a strong indicator that the underlying agreement has been well-negotiated by someone who understands the legal framework. If you are making a purchase that includes a donation to a charity, ask yourself whether the sale of the item meets the above criteria. Do the commercial partnership arrangements in your charity meet the criteria? If you are unsure, it may be worth reviewing your policy on corporate partnerships or updating the training of relevant team-members.