Charitable Memberships, Volunteering, and Discounts

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Our study is the first to explicitly consider the interaction between fundraising mechanism and mode of previous contributions to the charity.

As charities turn to the Internet to reach new donors, they face the challenge of knowing which traditional fundraising techniques will work online. A new study by Andreas Lange and Andrew Stocking shows that past donors tend to give more than non-donors, as one might expect. However, it also shows that past financial donors to a nonprofit group react differently to special membership discounts than do people who have only volunteered their time. 'We believe that our study is the first to explicitly consider the interaction between fundraising mechanism and mode of previous contributions to the charity,' they write in Charitable Memberships, Volunteering, and Discounts: Evidence from a Large-Scale Online Field Experiment (NBER Working Paper No. 14941).

Lange and Stocking look at online solicitations by a large left-leaning U.S. civil-rights advocacy group that were sent to 702,890 individuals. Some of the solicitations offered membership to the organization for $35; others offered a $10 discount off the $35 price; a third batch offered a $25 membership with no mention of a discount. Interestingly, the response rates to the $25 and $35 offers were identical: 0.23 percent. The simple price-cutting only reduced the average contribution from $45.21 to $36.32. But when the offer mentioned a special discount, the response rate went up to 0.27 percent. The average contribution did fall to $37.94, but the improved response was enough to make up the shortfall, so the nonprofit raised as many dollars with this appeal as with the $35 membership group.

This point is crucial for fundraisers because they generally adhere to the theory of the 'warm list effect.' That is, people who have donated money in the past (the warm list) are far more likely to do so again than non-donors. So if charities can use a special discount offer to increase their number of donors without sacrificing their dollar return, then they're expanding their warm list. These are the people from whom they can solicit funds in the future.

This study also more closely examines the nonprofit's past donors. Volunteers -- those who donated time to the organization (such as writing their congressman in support of the organization's viewpoint) -- were slightly more likely to contribute when offered the special discount (an additional 0.035 percentage points), but their average donation fell by $9.77. Also, the contribution rate of past donors was 2.6 times that of inactive donors; the rate for past money-donors was 14.5 times that of non-money donors. To manage these different types of potential donors, the authors conclude that charities can benefit from using an 'augmented warm list,' one that denotes when someone donated and whether it was time or money.

To gather some hints about the 'cost' and motivations of donors, Lange and Stocking look at the response to a picture-frame offer. If people donated more than $20, this nonprofit offered to send along the frame as a 'thank you.' It turns out that those who were offered a discount were more likely to accept the frame than the other two groups, but that past money- and time-donors were more likely to reject the frame than brand new donors. The authors conclude that 'warm list subjects' not only generate more revenue for the charity but also generate lower fundraising costs -- additional gifts are more likely to be turned down the more past donations ( of money or time) a subject has made.

-- Laurent Belsie