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.


This article was posted in: Donor acquisition, DonorTrends / DonorVoice, Research.
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