Saturday, July 23, 2011

Soliciting donors with a gift

            Does it make financial sense to include a small gift with a donor mailing?  Dr. Armin Falk of the University of Bonn in Germany conducted a field experiment to help answer this question.  Dr. Falk worked with a large international children’s relief charity to mail three different versions of an appeal to about 10,000 donors in Zurich, Switzerland.  All households received identical letters requesting gifts to fund schools for street children in Bangladesh.  One third of the recipients received a set of four postcards featuring reproductions of paintings drawn by children.  Another third received only one of the postcards.  The final third received nothing in addition to the letter.

            The frequency of donations increased by 17% when one postcard was included and by 75% when all four postcards were included.  The inclusion of postcards was most likely to increase the number of smaller gifts (up to $50).  It had no positive effect on the frequency of large gifts (over $100).  After subtracting the cost of the postcards, net revenue still increased substantially with the postcards.  Inclusion of one post-card generated a net revenue increase of 22%.  Inclusion of four postcards yielded a net gain of 55%.

            Dr. Falk then examined whether these gains were real, or simply reflected donors changing the timing of their giving.  To explore this, he compared the response rates among the three groups to another appeal sent two months later.  There appeared to be a small amount of substitution take place; those who had received postcards in the previous appeal were slightly less likely to give in the following appeal.  Even with this substitution, the four postcard approach still generated over 38% more revenue across both appeals combined.  While this study does not show the effects of repeated gift interventions, it does suggest that a one-time small postcard gift has a positive effect on response rates, total revenue, and net revenue.

(Citation: Econometrica, Vol. 75, pp. 1501-1511)

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