Bono

The colour of money

(RED) is unique in its scale and application, but is this business model the future of corporate giving?

by Emilie Filou, World Business
Last Updated: 23 Jul 2013

It has become a familiar sight: Bono, in his conspicuous red shades, flanked by the world's rich and famous, promoting the latest product to join his (RED) campaign to fight HIV/Aids in Africa. It could be a film premiere or a celebrity endorsement.And, of course, a celebrity endorsement is what it is, but of a very special kind. (RED) is not a product, nor is it a charity.

It's a business model designed to create a sustainable - and substantial - flow of private sector funds to HIV/Aids projects in Africa. A unique blend of business, philanthropy and PR, it could revolutionise the uninspired world of corporate social responsibility (CSR).

The premise is simple: a percentage of the profits from (RED) product sales goes to HIV/Aids projects, while the rest is retained by the participating corporations. On the surface, it's nothing new: win-win scenarios and enlightened self-interest have been talked about for as long as the CSR debate has been around. But (RED) is unique in its scale and application.

It is the brainchild of Bono and Bobby Shriver, lawyer and local politician, member of the Kennedy clan and brother-in-law of Arnold Schwarzenegger, governor of California. Bono and Shriver had already founded DATA (Debt, Aids, Trade in Africa) in 2002, a multinational NGO aimed at helping Africa through debt relief and trade.

Their plan with (RED) was to create a credit card that would help raise funds to fight HIV/Aids in Africa and raise awareness of the plight of the 40 million people infected worldwide by HIV/Aids. They approached American Express (Amex) in 2003 and, slowly, the plan evolved into a broader concept.

Thanks to their philanthropic activities, Bono and Shriver persuaded five more high-profile partners to climb on board: Gap, Armani and Converse at the launch, and Motorola and Apple later on. Each partner has designed a (RED) product or collection, with a percentage of the profits going to the Global Fund and the rest to their coffers. All have signed a five-year agreement with a guarantee of exclusivity in their sector. The initiative was unveiled at the World Economic Forum in Davos last year and launched in the UK in March 2006.

Set up in 2002 by former UN secretary-general Kofi Annan to fight HIV/Aids, tuberculosis and malaria worldwide, the Global Fund was, in the words of its executive director Richard Feachem, "the world's biggest kept secret until (RED) came out". With an asset base of $10 billion, it received over 95% of its funds from public sector donors and little attention from the rest of the world.

Feachem says that private funding had been a tough nut to crack because of three main difficulties. The contributions had to be large enough to have an impact and had to be sustainable, so that the fund did not have to spend its resources in soliciting donors every year.

Third, the donations should not detract from other worthy causes. So (RED) came as a blessing. "It was love at first sight," says Feachem. "Bobby and Bono came up with the concept of the credit card, and built into it was scale: this could be millions of dollars, it could be good for the company and therefore sustainable. It was completely new and would not steal from other causes."

The UK was a logical starting point for (RED). Home to Live Aid, Bob Geldof and the Body Shop, British consumers have long been attuned to ethical consumerism. In 2005, the ethical goods industry was worth £29.3 billion, overtaking for the first time the retail market for tobacco and alcohol. During its research on (RED), Amex identified 1.5 million 'conscience consumers', predicted to grow to 4 million by 2009.

The UK was also a good target market for (RED) partners. For Amex, the ethical consumer represented a significant departure from its older male clientele, while Motorola had the opportunity to enter a niche market, out of Nokia's reach. Armani used London Fashion Week to launch its capsule (RED) collection, and for Gap (RED) was an opportunity to reassert its ethical responsibility after sweatshop scandals had tarnished its image. In the 2005 Ethical Reputation Index, Gap had been ranked as the 12th worst corporate by consumers for business ethics.

In this context, one of (RED)'s main successes is the creation of a high-profile social issue umbrella brand. Anita Roddick's Body Shop was perhaps the first example of social branding, and Fair Trade, which guarantees minimum prices for producers, has also become a household name over the past few years. But (RED)'s uniqueness lies in bringing iconic brands together under its own flag.

Craig Smith, senior fellow in marketing and ethics at London Business School, says that one of the obstacles Fair Trade encountered early on was the issue of quality. If its coffee tasted like dishwater, no one would buy it, save, perhaps, a dedicated few. With (RED), he says, consumers do not have to compromise on quality or price. The brand and reputation are guaranteed, and that has taken social branding to a new level. In fact, this is arguably (RED)'s greatest contribution to the HIV/Aids cause: the high profile has given sufferers a much needed boost of positive publicity.

(RED)'s other achievement is financial: $20 million has been raised for the Global Fund so far. Most of the money has gone to two projects - in Rwanda and Swaziland - that provide training for healthcare professionals to prevent mother-to-child transmission of the HIV virus, voluntary counselling and testing for the prevention of the disease, and anti-retroviral therapy for HIV/Aids sufferers. Extra projects will be added to the (RED) portfolio as funds increase.

(RED) is reticent to the point of coyness about how much its partners receive from the sale of their products. It agreed not to disclose information about partners' individual contributions to, and gains from, the scheme. All that is known is the consumer's contribution - how much from each item goes to the fund (see above).

Tamsin Smith, (RED)'s president in the US, defends the decision, saying she does not want to create a hierarchy within the partners. "We are in this together. There is no company that is more (RED) than another, and I would not want one of our partners to feel less valued."

Feachem is similarly diplomatic. "There is a discussion about how much is being put in the public domain. My preference would be to put it all out there, but some partners might say: 'We are small in money, but huge in commitment and we do not want to feel like a minor partner'. We have to tread carefully."

Few would criticise the fact that the corporations involved take something out of the scheme. This is the very essence of sustainability. The worry, which stems directly from the lack of transparency, is that they may be taking more than their perceived 'fair share'. Anton Kerr, senior policy adviser of the International HIV/Aids Alliance, argues, for instance, that the high-profile public relations 'halo effect' - the extension of the overall (RED) impression to the company - and the extra non-(RED) business that corporations generate as a result of the publicity should be enough for them.

And good PR they are getting. Karen Fraser, who runs the Fraser Consultancy and produces the Ethical Reputation Index, found that 60% of the people who had heard of (RED) said that their opinion of (RED) clothing brands (Armani, Gap, Converse) had improved; 48% also thought better of Amex, which had ranked as the ninth worst offender on the Index.

However, Tamsin Smith says that good PR will not be enough to ensure (RED) stays at the forefront of what consumers want. "We are asking them to create a complete sub-brand, a special campaign, a new everything. We want Motorola's latest phones, Apple's brand-new Nano.

Companies would not be able to sustain that investment for five years if they gave all their profits away." Alexis Dormandy, executive board member for (RED) in Europe, says that it is a simple case of enlarging the pie before cutting it.

What is difficult to establish is whether (RED) has been a success. Smith says that its objective for 2006 was to launch and establish a global brand. That has been achieved, but the next stage is vague: "Our future vision is to attract new partners in targeted industry categories, continue with the global roll-out beyond UK and America, and with the core goal of raising sustainable funds for the Global Fund in the fight against Aids in Africa," she says.

So what does $20 million mean? Compared with the level of public funding the fund receives it is a drop in the ocean, but it represents a four-fold increase in private sector contributions. "We don't want to make monetary objectives because we are not tied to money-specifics. We want a long-term plan, not just to get the most money in one year," says Smith.

John Knell, director of the Intelligence Agency and who regularly works with charities on their business plans, says that (RED)'s reluctance to set targets (or make them public at least) might stem from a desire to protect the project from negative publicity. "If it set a target of $20 million and made only $10 million, the story would be about it not reaching its target."

But what about this year? And in five years' time? "Whatever the sensitivity, you should at some point know what to expect," says Knell. "Targets drive aspirations and they drive business." (RED) partners should be used to challenging targets in their everyday work, and Dormandy is a seasoned businessman, familiar with the demands of P&L, thanks to a career that has taken him to the likes of McKinsey and Virgin.

(RED), by its own admission, still has the feel of a start-up. "The last thing we are is a finished and polished product," says Tamsin Smith. "We don't have the perfect formula yet. We are still a furious band of crazy warriors." Indeed, with a staff of only 12 stretched across the Atlantic - its headquarters are in Los Angeles, its main market is in the UK and it raises funds for an organisation based in Switzerland - one gets the picture. The trouble is that this hardly conveys the sense that (RED) is going to take over the world, if that is what it wants to do.

As for the partners, although they won't state precisely what they are getting from (RED), early indications suggest that their involvement has been positive. Motorola says it wants to turn (RED) into a mainstream product and Armani is reported to be pleased with the demand for its collection. All partners launched in the US last October, with the exception of Amex. Because of the complexity of repayment schedules, it takes 18 to 24 months to judge whether a credit card scheme is successful. But if it turns out to be a success, Amex says it will consider other markets.

Most (RED) products are now available online, and (RED) has started partnerships with Yahoo! and Google to raise its profile. MySpace, where the (RED) community now numbers more than 800,000 members, has also played a vital role in spreading the word.

However, despite this, Fraser says research done by her consultancy shows that only about a quarter of the UK adult population was aware of the project six months after its launch. (RED) products remain decidedly niche and upmarket. It has also had to fend off criticism that it exploits western consumers: if people really cared about HIV/Aids in Africa, they wouldn't need a credit card to go on a guilt-free shopping spree. But Dormandy says that (RED) is designed to attract precisely those well-intentioned people who never quite get around to doing anything about their good intentions.

(RED) also faces the challenge of maintaining the uniqueness of its brand as it expands. Dormandy says it has been a feat of marketing genius to combine each individual brand with the (RED) label. "Our partners are trying stuff they have never done before.

It's not a trivial marketing task to pull off," he says. In fact, Motorola is rumoured to have ditched an advertisement for its (RED) phone made by (RED)'s advertising agency Mother. The ad shows two naked black bodies emerging from a lump of flesh being worked on a potter's wheel, a marked move away from its more usual techie branding - and perhaps a move too far.

Partners have also opted for different strategies. Apple and Motorola, for instance, offer identical (RED) and non-(RED) products, while other brands have opted for specific (RED) items. Smith says that the partners know best what to do in their market, but what is eclectic in a group of six may become chaotic with more partners and products.

The real litmus test will come in four years' time when current partners will have to decide whether to renew their contracts. Only then will we be able to judge whether Bono's idea heralded a new era of corporate social opportunity.

BONO THE PHILANTHROPIST

Since Band Aid's single Do They Know It's Christmas?/Feed the World in 1984, Bono has been on a crusade to save the world. An insight into how influential he has become as a champion philanthropist was the fact that Time magazine put him on its cover in December 2005, alongside Bill and Melinda Gates, as person of the year. U2 performed in the Band Aid and Live Aid projects organised by Bob Geldof, and Bono's role on the Band Aid single was reprised on the 2004 Band Aid 20 single of the same name. Geldof and Bono later collaborated to organise the 2005 Live 8 project where U2 also performed.

Since 1999, Bono has become involved in campaigning for third-world debt relief and raising awareness of the plight of Africa. DATA (Debt, Aids, Trade in Africa) was established in 2002 by Bono and Bobby Shriver, along with activists from the Jubilee 2000 Drop the Debt Campaign, to help eradicate poverty and HIV/Aids in Africa.

In early 2005, Bono, his wife Ali Hewson, and New York-based Irish fashion designer Rogan Gregory launched the socially conscious clothing line Edun in an attempt to shift the focus in Africa from aid to trade. The goal is to use factories in Africa, South America and India to create a business model that will encourage investment in developing nations.

Bono was a nominee for the Nobel Peace Prize in 2003, 2005 and 2006, and in 2006 was awarded an honorary knighthood in the UK's annual honours list. His contribution is to have given his philanthropic and political activities a share of his spotlight: his celebrity status has bestowed an air of mainstream importance. As he said at the launch of (RED): "It is sexy to want to change the world."

But he has drawn criticism from George Monbiot, Bianca Jagger and others for getting too close to those in power and "trying to patent the language of poverty reduction". U2 has also come under criticism for moving its multimillion business empire from Ireland to Amsterdam to minimise the group's tax liability.

Motorola: £10 from handset ($17 in US), available in Switzerland and Singapore; 5% of spending on calls from the networks on (RED) Motorola phones only at Carphone Warehouse

Apple: $10 from each sale of (RED) iPod Nano

Armani: 40% of profits of (RED) capsule collection launched at London Fashion Week, featuring the work of Ghanaian artists and available worldwide

Gap: 50% of profits from a special line with limited edition designs, available in selected stores in the UK, US, Canada, France and Japan, and online. All products made in Lesotho from African cotton

Converse: 10% of net wholesale sales on four limited editions designed by Giles Deacon, available in the US and UK; 15% of Make Mine (RED) shoes

Amex: 1% of total eligible spend up to £5,000; 1.25% over £5,000. Available only in the UK.

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