Of Market Norms and Premiums

The most informative session I attended at the 2010 Nonprofit Technology Conference had “behavioral economics” in the subtitle. Being a former Political Science major, anything with “economics” in the title has me at hello. Mostly because I believe economics is one of the few disciplines that can accurately predict how society will respond. Like it or not, we all respond to incentives, economic and otherwise. The session highlighted eight principles of fundraising supported by behavioral economics. All eight were reflected in what I hear at every creative meeting at Masterworks.

Our experience and testing has supports the central theory behind behavioral economics: that a rational argument is not always the most effective argument. If you want to read more you can download an ebook that mirrors the presentation. Mark Rovner presented principle #3: “Stick to social norms, not market norms.” Mark gave an example drawn from the research of behavioral economist Dan Ariely that clearly delineates between the two. A preschool was seeing that more and more individuals were showing up late to pick up their kids. In order to stem the tide they instituted per- minute fines for lateness. The results: tardiness went up. Once the preschool put a cost to every minute they moved the mindset from social norms to market norms. Parents now did not have the social pressure to pick their kids up on time because the preschool was now being compensated. Mark went on to say that once you introduce market norms into a situation, it is very difficult to go back and get folks to respond to social norms.

During Q & A someone asked about the impact of this principle on alternative gift catalogs. The consensus was that because the donor isn’t getting any benefit, the mere fact of the donation experience feeling more like shopping doesn’t invoke market norms. Market norms are most likely to be created with donors when premiums are offered. The panel supported what we know from experience here at Masterworks: premiums don’t acquire donors with high long- term value. If you can avoid going down that road, do it. If you already have used premiums to acquire and then likely cultivate donors, you likely have to continue that strategy with existing donors but moving forward you could use segmentation to create a “premium free” group of new and higher dollar recent donors. Incentives matter, but ministries can receive more and more meaningful support by relying on the social benefits a donation brings. Relying on market benefits and market norms creates transactional donors moved by their next premium fix, not your cause.