Acquisition: Premiums, Crack Cocaine And Nonprofit Suicide
Almost every direct response fundraiser who can count eventually comes to the realization that reliance on premiums to boost short-term acquisition response rates is a long-term prescription for poor retention and lousy lifetime value.
Many are unaware of the ample evidence in behavioral science for why premiums not only delude fundraisers but, far more importantly, destroy donor motivation and loyalty.
Choosing to ignore the ‘premium problem’ is far too often the option selected in the drive to keep acquisition rates high and CEOs happy. Even more insidious is buying into the myth that premium-acquired givers can be converted to ‘normal’ through the use of non-premium offers.
Kevin Schulman, our colleague over at DonorVoice, who studies donor retention, commitment and loyalty, posted yesterday on premiums. A post I consider ‘must’ reading for any fundraiser using or contemplating the use of premiums.
Here’s a summary of Kevin’s key points:
- There are reams of evidence that giving people premiums (what behavioral scientists call ‘extrinsic’ benefits) not only fails to deliver the long-term performance fundraisers require (i.e. positive lifetime values), but even worse, they destroy the donors’ innate, natural motivation or incentive to donate.
- Despite all the academic studies and the widespread use of incentives in the real world in everything from employee performance, to child rearing to fundraising, the behavioral scientists and psychologists have done a lousy job explaining this.
- Failing to communicate this point does not, however, diminish its reality.
- The REALITY worth repeating over and over: using premiums actually destroys the donor’s innate, intrinsic, philanthropic motivation.
We’ve all probably heard premiums semi-jokingly referred to as ‘the crack cocaine of fundraising’. Well, as Kevin points out, the comparison is literally true. Scientists, in controlled experiments, have determined that extrinsic rewards activate the same part of the brain and same chemical (dopamine) as does crack cocaine.
Kevin continues:
- “The narrow focus fundraisers put on short-term response from premiums is akin to what happens with donors given a premium. It literally changes their focus to the self-interested question of what is in it for them instead of the benefit of donating.
- “This, in a nutshell, is why conversion won’t work. We changed their mindset and framework; the new mental anchor for the premium donor is self-interest, not altruism.
- “As a supporting data point from our own relationship work we see the percentage of donors who fall into what we call the ‘Transactional segment’ — defined as having a very weak relationship to the organization, and by extension, churning with negative LTVs – being twice as big for premium-driven organizations versus non-premium.”
So, what’s the alternative to premium dependency? Here are Kevin’s findings on key motivators that preserve the intrinsic benefits of giving. Motivations that are proven to increase retention and life time value.
- Provide an environment and, in turn, an ask or offer that gives the donor:
- A sense of autonomy, control and ownership (myriad of possibilities here; and yes, directed giving is one, but only one);
- A sense of mastery (think results, progress for the cause but also, the DONOR);
- A sense of purpose.
- Use ‘carrots’ or rewards in ways that don’t crush the intrinsic motivation and deliver value to the relationship.
Doing this requires treating the carrot or award as ‘after and because’, not ‘if-then’.
For example, send your best donors an unexpected gift, not as part of an ask but instead, a reward for their support. But, also remind them of the shared purpose and mission and their important role in achieving it.
For doubters, Kevin summarizes the findings from an experiment in the world of blood donation. Read his findings for yourself and you’ll find out why the American Red Cross’ message — giving blood provides “a feeling money can’t buy” — works so well.
Are you caught in the Premium Paradox? The paradox where premiums are crowding out the very act the fundraisers are presumably trying to foster – philanthropy.
Roger
15 responses to “Acquisition: Premiums, Crack Cocaine And Nonprofit Suicide”
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Guys, looks as though your data is very US centric. In Australia many orgs are having a lot of success in getting premium recruited donors to commence a monthly gift very quickly after 1st gift.
DM recruited monthly donors deliver a significant long term net value so this does prove that if a clear case for regular monthly support is made (by phone/mail) then this can be a sustainable recruitment mechanism.
I disagree.
It depends on what the purpose is for acquiring the premium donor.
Our analysis also finds that premium donors with first gifts under $25 do have very low LTVs.
However, a premium acquired donor that gives a first gift of $25 or more behave very similarly to nonpremium acquired donors. So it isn’t the premium, its that premiums attract lower value donors.
But the real value of the sub $25 premium donor is that they lower the cost to acquire. In effect, they subsidize the higher value donors.
I couldn’t agree more with this post. We recently had a donor opt out of our mailings, writing “Don’t send me calendars, labels, bookmarks, just plain don’t mail me.” We have NEVER sent our donors calendars, labels, bookmarks or other premiums. She is lumping us in with every other health charity who does, and opts out from her very first donation to us, expecting us to begin the cycle of sending her premiums.
I think every leader who demands the performance of premiums needs to sit at the donor relations phones/mail desk for a single day and see and hear all the comments from donors asking to not be mailed that stuff, and those are just the donors who bother to make their preferences known.
I agree 100%, so, over the years, I’ve gotten very good at deflecting “helpful” advice encouraging me to use premiums. Hahaha!
Have you ever read Alfie Kohn’s Unconditional Parenting books? Same theory with parenting…if you reward kids for good behavior and punish them for bad behavior, you are reinforcing the punishment/reward system and destroying their innate need and abilities for acting appropriately, enjoying their education, exploring new things innocently, making a positive impact on the world, etc. I guess the research is showing that we never grow out of that…besides, all those crappy premiums are bad for the environment on so many levels. None of us in the environmental field should be hocking that junk.
I absolutely agree with Roger. I had the unique position of running the DM program and the pledge drive premiums program at a PBS station for many years. We referred to pledge premiums gifts as sugar highs. Premium donor retention was poor and sustainer giving was more like a payment plan. However DM acquired and renewal donors were mission-driven. They had a much much higher retention rate, they gave multiple gifts during each member year and they readily upgraded. We called premium giving the slippery slope because once your donors got them, they more and better stuff or they left.
I also agree. I wish more public radio/tv stations would chime in with their thoughts. I would love it if my local station sent me a mug or something as a surprise after I donated, rather than stating the premiums as a straight-up trade.
We never use premiums or other give-aways. We prefer to send gifts as surprises as Roger mentions. (oh and our donor retention rate is consistently over 70%…)
Dan Arielli (sp?) did some research on this a few years ago as well.
Then here’s the $64 question – if you have inherited a premium program and recognize Roger’s sage wisdom about its effect on philanthropy, how does the organization get out of the crack business – and do it without compromising the drug money (revenue stream)?
I’m wondering if there’s similar retention evidence regarding donors acquired through first time donor matching gift/grant incentives. In my world, there’s an addiction to matches because “they work.” But do they work long term?
Mary, You’ve asked the clear and painful question.
In reality, as painful as it will be you really have to do a ‘bless and release’ program. Holding on to those with proven value and taking the hit by eliminating those who have been infected. I truly wish there were an easier, more painless way, but there isn’t.
I’m sure the denial folks have many interim strategies. Study after study shows we humans hate to admit losing strategies. So get rid of ’em, take the hit and vow never, never to ingest the drug again.
Roger
Bad premium programs are bad. But there are good ones. The difference between them is people’s understanding of data. Here where he and I work in Australia and New Zealand, and from data I have seen from USA, Canada, Austria, Italy, Belgium and France not all premium donors are equal.
Like Bill Jacobs says, a premium donor behaves very similarly to a non-premium donor if all else is equal ie donation amount, payment method etc.
All arguments against premiums tend to be anecdotal “We recently had a donor opt out of our mailings…” or broad brushed “premium programs don’t work”. “Surveys say people don’t like them – it is not what they want.” None of these are valid arguments on their own.
In tests here I may get around 3-7% from premium mailings, and 0.7-1.1% from non premium mailings, depending on client, package etc, from the same lists.
Imagine the mailings went to 50,000 people each, and I got 4% and 1%. The premium would have got me 2,000 leads and the non-premium 500. But drilling down in the data I could have 550 donors from premium donating $50+, and the non-premium 450 such people. Whilst some of the lower value donation premium package donors – perhaps half – may need a ‘crack cocaine’ program the rest won’t.
However you look at it, I ended up with more donors and usually at a better ROI too.
Jacob was spot on – the ‘lower value people subsidize the acquisition of the higher value people’.
Our tests show that usually (but not always) being premium/non-premium acquired is not the biggest factor in subsequent giving patterns, whether the subsequent mailings are premium or non-premium.
We have a problem with small scale in this part of the world, and nearly all the premium acquired donors here do NOT get premium appeals as house mailings; the logistics tend to be unsurmountable, yet the programs are profitable for the charity. They are not premium programs; they are direct mail programs that usually get a kick start from a premium package.
No suicide there. Come on Roger – look at the data beneath the headlines.
Sean and Jacob… There are certainly short-term exceptions where premiums can and do subsidize acquisition costs, but that’s only a partial measure and only a partial ‘solution.’
And IF (a big ‘if’ where U.S. programs are concerned) the new donor does NOT receive subsequent premiums there as part of the house file appeals process those who remain will indeed have a higher value going forward.
We look at data every day and there are very few exceptions where 3 or 5 year Lifetime Value for premium acquired donors comes anywhere close to the non-premium donors. And, in my book the only metric that matters for income sustainability and growth is Lifetime Value.
Thank you for you thoughts on all this.
Roger
Birsket Boy – Good question. Does anyone know of any studies on donors acquired with matching grants?
Roger, Sean, Jonathan,
Reticent to step into a dispute between all you FR heavy-weights…
Yet I have to weigh in on the side of Sean and Jonathan, Roger, and say while I generally agree with you, and the data supports it, there are groups for whom a 3-year ROI is a better investment than 5-year LTV, simply because its more achievable.
Mercedes owners buy and drive; BMW owners lease and trade up; Volvo owners pass them down to their family. There’s not one kind of donor out there, either.
Globally, WWF suffers from schizophrenia on this; our US program is premium-driven, our European programs are a mix, and our Asia programs (mostly face to face) are mostly premium-free, but DRTV is slowly introducing them (without which it simply will not deliver cost-effectively).
We would have to “bless and release” an awful lot of good conservation programs if we shrank to a non-transactional water-level. As Sean says, sometimes 5 three-year donors are a better investment, when tiger survival hangs in the balance, than 1 ten-year donor, as long as the AG is high enough. Monthly giving, IMHO, is the holy grail in our biz, even with a one-time premium (like our symbolic adoption offers, which tie directly to the idea of the gift).
With all due respect, and admiration for the work of all of you,
Mitch Hinz
Because of the premiums are part of the public broadcasting DNA, we couldn’t remove premiums from the on-air conversation. We did try to step the renewing donors down from expensive “sugar high” items by offering station-imprinted items, such as mugs or tote bags, figuring they were more mission-related than a Les Mis DVD. I also think there’s something to people identifying themselves with your cause. “See, I’m a cool person. I have a “This American Life” flashdrive.”
But we learned that we had a couple of different populations that needed different treatment: offers, retention strategies, and understanding. We were more aggressive in pursuing retention and upgrade with our “mail” people and we actually moved the premium folks over to telemarketing much earlier in the game, so that there could be conversation and negotiation when securing the renewal/next gift. This worked impressively. It was worth the extra money for telemarketing. And they didn’t request premiums, although they could have.
As is said a lot in our circles, you need to know your audience. It’s worth the time to surf around a donor database and see how some of your donors behave, where they came from, anything else that’s there. You should do sweeping statistical analysis, but looking at individual donor behavior can be vastly informative.
Interesting article and discussion, with many valid points. Fundamentally flawed however by not considering separately the use of premiums to generate a cash gift vs an ongoing monthly bank mandate (eg Direct Debit giving in the UK). In the former, a supporter has to opt in to further giving – in the latter they have to opt out, The life time value calculations (or, better, net present value calculations) are very different for the two.
Mike