Altruism Uncove(red)?

The Starbucks(Red) card and one of their iconic cups. Image sourced from here.

William Easterly, an economist at NYU, recently penned a blog post on the effectiveness of the Starbucks RED campaign on actually "saving Africa." Basically, you purchase the RED card at Starbucks, and whenever you use it while buying a beverage Starbucks donates five cents to the RED campaign. I waver a bit when it comes to my opinion on Easterly--I liked White Man's Burden, but haven't been such a big fan of some of his papers or his public opinions. In any case, with the customary panache and punishing arithmetic of the economics profession, Easterly writes the following:

I was curious about what the going rate is these days for attracting customers who want to save Africa. Five cents was a little lower than I expected.

How much money is flowing to Africa from this? Aid Watch’s exclusive investigation consisted of asking about seven Starbucks cashiers around Greenwich Village how often they processed the Starbucks Red card, with its payoff of five cents for Africa per use. All except one cashier said it was rare to see them, maybe 1 or 2 in an 8-hour day. The one exception said they saw them about 10 times a day. So we have a payoff for Africa of between 5 and 10 cents per day per Starbucks cashier, with one outlier of 50 cents a day. This sample is obviously ridiculously unscientific, but perhaps it can attain the status of an anecdote.

Easterly further notes that when people buy these RED cards they make a pledge for how much Starbucks stuff they will buy with their cards, but, of course, there is no enforcement or verification that these pledges are kept.

As you might imagine, this wasn't quite Starbucks's cup of ... coffee. They retaliated today, in a letter that Easterly posted on his blog. One key snippet:

Your estimation of (RED) revenues generated is wrong. The fact is Starbucks has more than 12,000 stores in the U.S. and Canada and the (Starbucks) RED website and barista analysis has led you to an inaccurate conclusion of how many people have bought Starbucks (PRODUCT) RED products. As of March 2009 [the program started in Dec 2008], Starbucks customers have generated contributions equal to approximately 4.2 million daily doses of antiretroviral medicine through the purchase of select (Starbucks)RED products.

Now that statistic of 4.2 million daily doses of antiretroviral medicine is quite interesting, nevermind the fact that Starbucks neglected to mention whether that referred to first-line or second-line treatment--the main difference being much higher costs for second-line.

So how do the numbers hold up? Let me present some punishing arithmetic of my own (read: mad assumptions forthcoming).

According to p. 33 of the WHO's 2008 report, "Towards Universal Access: Scaling up Priority HIV/AIDS Interventions in the Health Sector," the cheapest first-line antiretroviral treatment for an individual (stavudine + lamivudine + nevirapine) costs US$91 per year, or about $0.25/day. Therefore:

• 4.2 million doses x $0.25 ~= $1 mil.
• $1 mil / 12000 stores ~= $83/store
• $83/120 days (4 months of program) ~= $0.70 per store per day
• $0.70/$0.05 = 14 RED drink purchases per day.

Now this does seem a bit higher than Easterly's empirical evidence, though he does suffer from small-sample bias (but it's Greenwich Village? you'd think ... ). Perhaps Starbucks found a much cheaper ARV treatment? These are details that the company would need to open up to consumers.

Outside of this discussion, there is a larger debate regarding consumer behavior, altruism and diffused responsibility. Compared to the other Product RED partners, Starbucks's contribution of $0.05/beverage does not seem all that great. For instance, every RED iPod nano purchased provides 83 single treatments to reduce mother-to-child HIV transmission. Every RED Windows Vista Ultimate purchase provides six months of ARV therapy for a single person in Africa.

An iPod or Windows Vista represents a much more significant investment for the consumer, one that requires some thought. Coupling the RED program with these purchases might yield better results, as consumers would feel that they are making a difference. On the other hand, Starbucks suffers from a few issues, one being that coffee might not be that special of a purchase and if I forget to use my RED card, then they're only missing out on $0.05. Not too bad, right? At the same time, there's diffused responsibility: if the website says thousands and thousands of people are signed on to the RED campaign (though, as Easterly points out, not necessarily fulfilling their pledges), then maybe it doesn't matter if I miss a purchase. Or two. Or twenty.

You see where this goes. Perhaps Starbucks should have a particular product be RED-specific on a given day? Or couple RED with less common, but higher yielding purchases, such as coffee beans or mugs or gift cards. Or make customers feel more distinctive (yeah, human nature) by offering special merchandise for people who raise X amount of money with their RED cards.

Of course, there's also the debate over whether public-health aid is beneficial to Africa in the long run. But let's not get into that now ...