One-for-one business model how does this work? A case study of Toms Shoes

Think about a company that make hefty money by giving away their products for free. A simple idea with its roots to cause marketing and social entrepreneurship.

We are talking about a company called Tom’s shoes, which is proving everyone that a company can also make hefty profits even while doing good for the society.

Let’s talk about how they are using their cause marketing business model and reaping the profits out of it.

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Toms shoes is the subsidiary of Tom’s retails which has wide range of products under their portfolio, founded by Blak mycoskie in 2006. Toms company designs and markets the products such as eyewear, coffee, Apparel ad handbags through its respective subsidiaries. Their flagship product is Alpergata shoes.Tom’s shoe was born after Blake had the opportunity of going on a shoe drive while he was on a vacation in Argentina which was organized by an American woman whose driving factor was “sell a shoe, Give a shoe”.

So how does Toms Shoes work and manage to donate a pair for every pair of shoes it sells?

Tom shoes operates on the unique different business model where it gives away a pair of shoes to the underprivileged for every pair of shoes it sells. They do this via online store, eCommerce and normal retail stores. They call this business model as “One –for –One Model”.

So how does Toms promote their brand?

Toms shoes leverages on two other key partners to help with the donations and in promoting the brand.


NGO’s:

Toms has its own non- profit organization called Friend of Tom, which connects with individuals and communities with need. Apart from their own NGO they connect with hundreds of others in 60 other countries.

Affiliate Partners:

Toms also runs an affiliate program that allows businesses to partner with and release full range of products. These affiliates also help to promote Toms, while affiliates generate revenue for themselves.

So How are consumers perceiving this?

So far this strategy is working for them in this market of brand- conscious consumers. Toms shoes is also perceived as perfect brand for the fashionable footwear. Consumers have more brand awareness about Toms than it was a decade ago due to social media and digital advertisements.

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Simple idea of donating a product for every product sold is actually a marketing brilliance and perfectly incorporated and executed by Tom’s.  If we look at it, Marketing is actually free for Toms shoes since the donations from their side helps to boost the Word-of –mouth.

Apart from that Toms has tapped into social media, utilizing them to the fullest with lots of campaigns covering their donation drives and such. This translates to free PR for them. This has proved one of the main reasons for success.

This type of promotion has helped them to save quit a lot on their marketing budget. The saved amount is circulated back into the company. They are in turn also eligible for the tax credit on their donation.

But how does Toms shoes make money when they give away a shoe for every shoe that it sells?

Below is the simple accounting on how Toms makes a profit

  • Toms shoes cost around $9 to make.
  • But, they are sold from anywhere from $44 to $150 in stores.
  • Not only does the customer cover for the donated pair, it helps Toms make a profit of about $26 – $132 depending on the pair sold.
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The above calculation is self-explainable as whether toms’ shoes is profitable or not {as Toms is not listed company, the numbers aren’t exact and hence must use publicly available data to proceed further}.

As of March2019, Toms shoes has donated more than 88 million pairs of shoes. This goes into Toms shoes Marketing budget for the 13 years the company has existed. As the donations are basically free PR for Toms via their social media and the news coverage that get for their donations.

This gives us the amount spent by Toms Shoes for its marketing – about $792 million – for all 13 years of the company’s existence.

If we compare Toms with its competitor say Nike, which spend $3.8Billion in 2018 alone, which is nearly 4 times the total amount spent by Toms shoes over 13 years of its existence.

How sustainable is Toms business model?

Toms Shoes has shown everyone that it is possible to stay profitable as a company as well give back to the society for its betterment. It’s not only Toms who have adapted this strategy there are lot of other who do it.

Can this strategy be applied in all the segments?

No, not every company that adapts this model can be as successful as Toms shoe’s level the companies that could fit well under this one for one model are usually the ones that sell day to day commodities such as shoes, apparel, daily essentials.

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That is not to say that this isn’t viable option for other companies. It’s just that they are better suited for physical/tangible products than the services.

Keeping aside the debate as to whether their donation of shoes makes a difference to solve the poverty and there more important issues to be tackled. There is also questions about ethicality of the donations as they could very well be us to take the tax credit.

Whatever it is Toms has helped the One for one model reach the limelight. This in turn has helped to promote social entrepreneurship, it also shows the world a company can be profitable while doing good to the society or achieving cause.

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