Product giving seen as good business

February 20, 2012

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Justin Ross

Companies can get a better return on investment by donating merchandise instead of liquidating or destroying it, a new study says.

Giving products to charities boosts corporate bottom lines, reduces waste in landfills, and provides relief for people in need, say The Business Case for Product Philanthropy by the School of Public and Environmental Affairs at Indiana University.

The research shows that "donating products can result in substantial financial and social benefits for minimal cost and risk," Justin Ross, assistant professor of public finance and economics and lead researcher for the study, says in a statement.

Product giving offers a "considerable advantage over cash donations because it can carry an enhanced tax deduction" and is more visible than giving cash, the study says.

During recessions, it says, cash can be a more pressing constraint for businesses, while lower sales tend to create a surplus of inventory.

And because product costs are below market value, product donations can be more valuable to nonprofits that cash-equivalent gifts for buying those same products, the study says.

It also can be simpler for companies to decide how much product to donate than determining the amount of a cash gift, freeing management to focus on other issues.

Donating cash is equivalent to donating profitable inventory, so donating products that otherwise would be liquidated or disposed of allows for bigger strategic philanthropy by a company, the study says.

Product donations also can provide the same "image-enhancement benefits" as marketing and advertising programs, it says, and at a lower cost.

Companies that donate products also avoid fees and "negative branding implications" associated with disposal of excess inventory, the study says.

And product donation is "superior to liquidation in most circumstances," it says.

For people in need who are get the products donated to charities, donated products "can alleviate constraints on family budgets by reducing necessary expenses associated with utilities, household upkeep, furnishing, apparel and personal-care products," the study says. "This frees family income to cover other more discretionary expenses."

The study includes a worksheet that companies can use to conduct a financial analysis help decide whether to liquidate, dispose or donate products.

It also provides information for estimating logistical costs of product philanthropy, and describes administrative and accounting involved in product philanthropy.

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