Premiums Make Me Cringe
Probably no direct mail fundraising practice makes me cringe more than the use of premiums in prospecting.
My instinctive reaction is to regard them as pure hucksterism — evidence that the sending organization regards its prospects as mindless. More interested in the stamps or coffee mug or plush toy than the real issue or cause.
But that’s just my personal reaction, and over the years I’ve disciplined myself to simply grind my teeth when the subject arises … then test and obey the actual response data. Just as Jeff Brooks advises in this post.
As he points out, that response data must be carefully examined.
First, there’s the initial assessment of net cost per acquisition … was the boost in response rate (if any) sufficient to offset both the higher package expense and the decrease in average gift (if any)? I’m presuming here that the organization has indeed tested premium vs non-premium!
However, that’s only step one in the analysis. You then need to look at the lifetime value of premium-acquired donors against non-premium donors (or at the very least, their respective renewal net incomes). In my experience, here’s where the viability of premium donors often fails to prove out. The implication of such follow-on data being that the premium donors were in fact more casually connected to the cause in the first place.
Still, as Jeff says, this is an analysis that will have different results for different organizations (and even different premium offers).
So, if you’re inclined to try premium offers, you must test!!
Tom
9 responses to “Premiums Make Me Cringe”
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Dear Tom:
I guess you and Jeff knew you’d be opening a Pandora’s box of responses when you wrote your columns on premiums. Back in the early 2000’s we conducted a test of premium vs. mission vs. emergency mailpacks.The test was conducted in Canada.
As expected, the emergency pack did best and dropped off quickly in follow up mailings. The premium mailing did second best and dropped of less quickly. The mission mailing did worst, and dropped off least. No surprise there.
In terms of medium-term results, the premium mailing did best. I say “medium-term” because we abandoned the test after two years.
The reason is that in practice it is almost impossible to have three groups of donors subjected to exactly the same conditions for several years (in terms of other mailings, upgrades, etc etc) so that all other variables are constant.
So testing may not provide a sufficient answer.
In terms of experience (30 years in fundraising) I would have to say that I think the right premiums can help. Premiums that are designed to make a person feel guilty or make a donation because they like the gift are going to be ineffective. However premiums that are designed purely to get the recipient to open the envelope, (like pencils and visible address labels)probably do increase lifetime value. If a person at least open our envelope, it gives us a chance to convince the recipient about our cause. But then we must be sure that our letter is compelling in its own right.
My bottom line? Use a premium, but not too nice!
Let me raise another issue about premiums and, perhaps, even direct mail, and direct marketing, in general.
Most prospect packages carry the implied and convenient notion that when a person contributes to the organization they will be helping resolve the issue at hand. It might be protecting animals, curing cancer, alleviating poverty.
The fact is that the new supporter’s gift will be used to pay for the package development, printing, postage, and the premium. Depending on how the package does, the new donor will have to contribute sometimes for years before any of their donations actually helps any issue. “Hucksterism” isn’t the word for this, the word is “fraud”. If non-profits were bound by full disclosure about how a new donor’s contribution in response to a direct mail package would actually be spent, fund raising would change dramatically.
Premiums simply exacerbate this problem of implicit fraud. Moreover, it seems that, not infrequently, people who respond to premiums need further premiums to continue to respond, compounding the problem once again.
Regards,
Stephen Best
Tom,
I empathize. I am always pulling for the mission based acquisition packages. The mission based package joins are certainly most valuable donors–all 5 or 6 of them.
Analyzing ROI two or three years out, the premium joins invariably win out simply because there are more of them. That said, there are a range of premium options to test from labels to stuffed animals. One can also try a minimum ask for a back end premium.
Another thought, the premium packages may be bringing in the same number of quality donors. They are simply hidden by the low average gift.
Dear Tom,
Interestingly and coincidentally, the (mis)use of premiums in DM fundraising was featured in Anderson Cooper’s AC360 last night on CNN (“Part 2” of the segment airs tonight): http://www.cnn.com/2012/05/07/us/veterans-charity-fraud/index.html?hpt=hp_c1
Over the last 20 years, I’ve mailed a variety of premium packages for many worthy, legitimate charities in their house and prospect programs, testing and measuring ROI and LTV along the way to minimize risk and maximize profitability for the charity. Wherever possible, the premium was connected to the organization’s mission and supporter action. The result? Millions… of net dollars raised, donors engaged and new donors acquired.
If you were to ask “Joe or Jane Donor” what type of fundraising they dislike the most, I bet receiving premium packages ranks (almost) as high as getting telemarketing calls. Yet, both can be among the best tactics to use for a successful, integrated DM fundraising program. In focus groups I’ve conducted with direct mail donors, the majority almost always said how much they hate premiums, and yet those very same individuals either came aboard through a premium package or continued to renew their support through a premium-based appeal. So, what to do? Always give your donors the choice to “opt out” of receiving future premium mailings, and honour their wishes accordingly.
As we know, premium packages don’t work for every organization, but when they do, they’re a very effective way to raise money and awareness for a cause. I look forward to following this dialogue and debate!
Cheers from Canada, Sonya (Swiridjuk)
Tom, In my world of membership development, I think a distinction needs to be made of front-end and back-end premiums. I too cringe at front-end premiums, but will tell you that we have seen much success with the use of back-end premiums to get people to join an organization – at a decent pricepoint – and THEN receive their reward. Not only is it effective in acquisition, but in renewals, upgrades and giving a second gift. Plus, it the item is branded and connected to the organization’s mission, it can make the user feel good, connected and advertise to the world that they are connected and supportive of the organization they just became of member of.
Dana Hines, CFRE
Membership Consultants
When I worked at a small grassroots nonprofit, I always cringed when people –including board members — suggested the basic membership premium include a tshirt. As a small nonprofit, we didn’t have the membership volume, nor the storage space, to handle the cost of a tshirt per member. Regardless, a t-shirt for a $35 membership gift wouldn’t meet IRS “quid pro quo” rules. I repeatedly had to say as nicely as possible that if you want a t-shirt, then by all means buy a t-shirt (we did have them for sale). If you want to make a charitable gift to the organization, make a gift. We did send members a bumper sticker when they joined/renewed; cost effective, easy to mail and appreciated (based on feedback).
Personally, what I dislike receiving are the premiums that are sent BEFORE I make a gift. And don’t get me started on the nonprofits that mail me nickels or dimes.
Tracie Butler-Kurth
Interesting conversation. Let’s not forget about the residual value that isn’t discussed or measured. And that is the branding/marketing impact of the premium. Umbrellas, grocery totes, jackets, water bottles and hats branded with the logo of the organization are a few of the premiums that do a great job of marketing for the organization every time they’re used. Free advertising – who could argue with that?
As Cheryl notes, there is branding value to premiums, IF they are in fact brand worthy … i.e. not cheesy junk with your logo splashed all over it.
However, should branding be an expense that falls on the budget of direct response fundraisers … and affects the ROI analysis of their results?
Arguably, if you want to claim a branding benefit, then find a communications budget to fund the premium with.
Stephen,
I respectfully disagree.
Just because the cost of an appeal may exceed the income from the initial returns does not make it fraud. First, budgeting doesn’t work that way. If it did, all donations raised on one particular appeal would have to be spent only on the program given as the example. Second, everyone knows there are upfront costs in an investment. Staff have learning curves and only pay for themselves over time. If your model were used, we would never hire any new staff because they hadn’t paid for themselves immediately. Finally, it’s not fraud because nobody is lying or performing a bait-and-switch. Ask the costs and ye shall be told.