We often assume that it is cheaper to keep an existing customer than acquire a new one. But marketing scientists at the Ehrenberg-Bass Institute believe otherwise, and they have the data to prove it. One of those experts is Dr. Margaret Faulkner, a Senior Research Associate.
Dr. Faulkner’s research covers consumer behavior, the effectiveness of marketing activities and brand management, particularly within the charity and not-for-profit sector. Her team tries to convince brands to challenge assumptions they may not even be aware they have, let alone use as the basis for their strategies and marketing agendas. She recently sat down with us to debunk a few myths that persist in the nonprofit world.
Read on for Dr. Faulkner’s 4 marketing myths in the nonprofit world — debunked.
1. Customer Loyalty
Donors will always support you.
In the for-profit sector, loyalty is somebody who is going to keep coming back to buy a product…loyally.
In the nonprofit sector, however, 100% loyalty is not guaranteed. People are going to give to the causes they care about at the time, and it might just not be your organization.
What is required is a shift in thinking for nonprofits, starting with two patterns.
The Double Jeopardy Law and Loyalty Patterns
The Double Jeopardy Law was first noticed in the 1960s by William McPhee, a sociologist from Columbia University. In looking at the popularity of radio announcers, Dr. McPhee noticed a pattern: Unpopular presenters or announcers suffered twice. The first jeopardy was that they had fewer listeners (hence their unpopularity). The second jeopardy is that the people who do listen to them were more likely to listen less often than they would to other, more popular announcers. Thus they were not loyal to that one announcer.
According to the double jeopardy law, the less popular announcers will not only have fewer people listening, but whatever customer base they do have will not be loyal to them. This brings us to loyalty patterns…
Loyalty shifts depending on the type of market, of which we have two types: There’s the subscription market, in which you subscribe to a provider (such as an insurance company or electricity provider) and don’t switch brands or providers often. When you do, it’s difficult to switch without a bit of hassle. We also have the repertoire market: This is where there are multiple brands that can meet your need at any given time. You likely use multiple brands or organizations depending on the occasion.
Where does that leave nonprofits?
Nonprofits and charities exist in both the repertoire market and subscription market. For example, someone will sign up for and give to World Vision: Sponsor A Child for years at a time while continuing to make contributions to a variety of other organizations.
“What we see different in loyalty is that in the subscription market, such as insurance or banking, there’s a high number of people solely going to one provider,” explains Dr. Faulkner. “ But, in the repertoire markets, we see maybe 10% or less of people only giving to that one brand.”
Dr. Faulkner believes that understanding the reason for this requires a different way of thinking about loyalty.
“We’ve had textbooks tell us we should be trying to get people to only be loyal to you, and then you have this view of, if you’re giving to somebody else, they can’t be loyal, can they?
“That’s normal,” Dr. Faulkner goes on to add. “We will have people giving to multiple charities. If you run your statistics and if you do have information on who else donors are giving to, you’ll see you are just one of many charities that they’ve been giving to. And that’s fine.”
The bottom line
100% loyalty doesn’t exist in the nonprofit space — and we shouldn’t expect it to.
A heavy supporter will always be a heavy supporter.
We know from US giving trends that we only retain about 20% of first-time givers to our organizations year after year.
Here, Dr. Faulkner urges us to look deeper: “Is it that they are only going to give once a year or once every second year or every third year? It might be that’s their normal pattern for your charity of re-engaging with you.”
Dr. Faulkner goes on to add: “Research shows that we can’t tag somebody, say they’re going to be the heavy supporter, and expect that they will continue to be your heaviest supporter. It might be 40% or 60% of those who were classified as the biggest donors will retain that frequency next year.”
The Bottom Line
Don’t assume that a heavy supporter will always return, or return on your standard timetable.
3. Acquiring New Donors is More Expensive Than Retaining Current Donors
It’s much cheaper to retain current customers than it is to get new customers.
This theory is ingrained into the lore of business and marketing, but it’s a concept that came about from a theoretical approach to an article written decades ago.
Frederick F. Reichheld claimed in the Harvard Business Review that it’s most beneficial for an organization to retain existing customers — and reduce your defection rate by 5%.
His claims were not empirical: There wasn’t evidence that you could drop your defection rate by 5%. But the thought was that if you could reduce the defection from 15% to 10%, that would be wildly beneficial for your company. And so that’s where you should focus all your energy.
But the costs of retaining customers, in both energy and money, was never compared to the costs of putting that energy and money into other things, such as acquiring new customers.
“By looking at brands and highlighting those that have grown, as well as those that have declined, you can see that it’s not the number of people that are leaving them,” says Dr. Faulkner. “The difference about whether you grow, whether you decline, is the acquisition rates. If you stop focusing on acquisition and only focused on the reduction of defection, you know that’s not going to give you the outcome you need.”
At the same time, you shouldn’t stop focusing on retention. You need to find a balance.
As it relates to nonprofits, if a donor hasn’t done anything for 6 months, or for 12 months, you assume that they are not active or are no longer a supporter. But from the donor’s perspective, they might still feel that they’re supporting you. They may simply have not perceived an opportunity to donate again. Or, they’ve moved away from where your organization operates, they’ve changed lifestyles, they lack disposable income — or a dozen other reasons.
We make our decisions by looking at the evidence about what’s realistic and possible. If your organization only focused on retaining your existing customers, you would in turn slowly shrink your supporter base and decline as an organization.
The Bottom Line
Retaining customers is important. But in order to grow, you need to focus on acquisition.
4. Seasonal Awareness
People are in a giving mood in December, therefore we should spend most of our marketing budget in this period.
People will give all through a 12 month period, it’s not just a Christmastime thing.
According to Blackbaud, about 17% of overall giving happened in December.
“If you’re only reminding people that you exist and need support at Christmas, then in all those other months, you’re losing that opportunity,” says Dr. Faulkner.
People’s memories decay over time. They naturally forget things, so you need to be constantly reminding them of your organization. If you have branding elements that are recognizable and effective, use them and spend your money to remind people that you exist continuously throughout the year.
And remember that it’s important for you to remind all potential supporters, not just your existing audience, that your organization needs their support.
The Bottom Line
Awareness efforts throughout the year are more effective than short seasonal bursts.
Even if it is scary or goes against some of the prevailing wisdom that guides your own organization, challenge some of these myths through testing. What’s worked for you? Tweet us with the hashtag #WhaledIt.