The Risky Business Of Courting LGBT Customers

By Stephen D. Simpson, CFA | August 29, 2012 AAA
The Risky Business Of Courting LGBT Customers

Whether it's due to the rise of social media and the phenomenon of the immediate sharing of views and opinions or just an intensification of the "culture wars" that seem to occur everywhere throughout history, where we eat and shop now has more political and social overtones than ever before. In particular, companies are finding that they must be very careful in how they attempt to position themselves towards Lesbian, Gay, Bisexual and Transgendered (LGBT) customers.

Targeted Marketing Has a Long Tradition
While explicitly looking to appeal to LGBT customers may aggravate or antagonize some people, the reality is that it's a natural outgrowth of what companies have been doing with their marketing for decades. Mass marketing is fine, but companies have long known that they can increase their sales by also running ads that appeal to specific groups.

While I may be trafficking in stereotypes here, a company is not going to attract female shoppers in the 34 to 50 age group with commercials featuring a lot of explosions and crass jokes, just like ads with middle-aged women sitting on a couch and having a quiet chat aren't going to sell a product to teenaged boys.

In the case of the LGBT community, you're talking about a market estimated to include about 9 million people, with nearly $800 billion in annual buying power. That's a market worth trying to court, to say nothing of the fact that taking the opposite approach (looking to exclude or offend this group) may not only alienate this market, but also have a spillover effect to those who consider themselves "friends and family." Likewise, a company's employment and benefits policies can often act as a positive marketing factor - companies such as Levi's, Nike (NYSE:NKE) and Starbucks (Nasdaq:SBUX) have been praised for their political activism and benefits policies for LGBT workers (and their partners) and it seems that those stances create a positive "halo effect" for many consumers.

Is Controversy Bad for Business?
If there is money to be had in appearing (or being) LGBT-friendly, that has to be set against the potential costs. There are two diametrically opposed viewpoints on whether companies should get involved in controversial issues - there are those who believe that almost any publicity is useful, while others view a company expressing any opinion as risk-taking without any likely benefit.

The truth is almost certainly more complicated; there are certainly some positions that would be universally bad for the company (I don't think anybody would support a pro-child labor policy, for instance). However, for the most part, LGBT marketing is a less divisive issue than some believe. Various opinion polls suggest that most customers have accepted the marketing campaigns as a normal part of the evolution of business and, in fact, they may be already blending into the overall background noise of advertising.

On the flip side, taking the other side of the issue can be quite risky. Chick-Fil-A generated enormous controversy when its president Dan Cathy affirmed its conservative Christian policy stances. Curiously, this kerfuffle was never about accusations that the company mistreated LGBT employees or customers; rather just that the company's owners support conservative causes.

Likewise, Target (NYSE:TGT) found itself targeted with boycotts and protests when it became public knowledge that the company donated to a conservative political group in Minnesota, even though there was no evidence that the group's stance on LGBT rights had motivated the donation (conservative groups often also have highly pro-business agendas). There's also the more serious case of Cracker Barrel (Nasdaq:CBRL) - in years past, the company appeared to actively discriminate against LGBT employees and customers, but the outcry (protests, boycotts and lawsuits) ultimately led the company to adopt stronger anti-discrimination policies.

How Much Do Companies Really Have at Stake?
I think it's also well worth asking the question of whether or not companies really have that much at stake in taking an LGBT-friendly approach with their marketing and/or corporate policies. Boycotts are nothing new and many Fortune 500 companies find themselves targeted by boycotts over this or that issue every year - most of these boycotts amount to little more than protesters showing up outside the company's headquarters for a few days or weeks, and seldom is there an identifiable impact on sales.

In many cases, consumers are not as quick to change their habits as we sometime believe, and in other cases, they may have no choice. Consider the cases of Kraft (NYSE:KFT) or JC Penney (NYSE:JCP). Both companies were targeted by groups after a rainbow-colored Oreo campaign and the hiring of Ellen DeGeneres, respectively. In neither case was there a meaningful negative consequence - in fact, the controversy seems to have stimulated sales for both companies and One Millions Moms dropped their attempt to boycott JC Penney; likely because it seemed to be generating considerable sympathy, support and interest in JC Penney.

Boeing (NYSE:BA) has long been an LGBT-friendly company; are people going to cancel their travel plans or refuse to fly on a Boeing plane as result? Will they stop using Amazon (Nasdaq: AMZN) and willingly pay more for merchandise? And what about a company like IBM (NYSE:IBM) - a company with virtually no consumer business anymore? Maybe some businesses will refuse to buy/use IBM hardware, software or services over their LGBT-friendly policies, but it doesn't seem like an especially likely or large risk.

The Bottom Line
While LGBT issues are still socially and politically divisive, it's less clear that courting LGBT customers and employees offers any real risk for businesses. Although there may be very specific types of businesses that have to be very careful, the ultimate reality appears to be that most people do not feel strongly enough to stop patronizing corporations that target this market. In actual fact, it increasing seems like the opposite may be true - companies that aren't seen as conforming to the new norms may find it harder to attract and retain the customers and employers they want.

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