Economics of Charitable Giving - Research Paper Example

Economics of Charitable Giving #1 Why do people give to charity organizations? It’s clear that the reasons people give to charity organizations are varied and attempting to limit the explanation to one reason is naïve and short-sighted. This reflexive journal entry examines the findings of one of the major academic articles on the subject “Economics of Charitable Giving: What Gives?” and considers the topic from a personal perspective. The article discusses a number of competing theories for giving to charitable organizations, beginning with a theory termed ‘Perfect Altruism’. According to this theory people are concerned in seeing that the particular charity is able to reach its established goal. As a result they don’t care who the charity receives its money from, and are primarily basing their donation amount on how much they perceive they must give to help the charity achieve its pre-defined goals. One might assume that proponents of this theory would point to the large amount of charity drives with set goals; ‘Let’s raise $5,000 to help end world hunger’ – or similar formulations. Certainly, the $5,000 will not end world hunger, but for perfect altruism, it gives donors a goal to achieve, subsequently increasing motivation for giving. There seems to be two other competing mainstream theories for giving – ‘Prestige’ and ‘Warm Glow’. One could probably surmise what these theories underlining assumptions: prestige theory holds that gives donate to charities for the public perception of goodness and upper-class panache it contains; whereas warm glow theory argues that people give to charities for the internal feeling of goodness and meaning they gain from giving to charity. In my personal life the times I have given to charity have been out of a combination of prestige and warm glow. I believe there is a sense of political commitment that comes from the charitable giving I have done. Giving is also a way of identifying with that particular organization. If you give to Green-Peace you are sort of an honorary member is sense. #2 Persuasion Techniques This entry looks at some of the techniques used to persuade donors by large charity organizations and offers a personal example of the situation. It argues that there are a multitude of techniques used to persuade donors, and the techniques are co-opted largely from the business world. “Investing in modern marketing techniques (2009)” argues that one of the seminal works in charity persuasion was Philip Kotler’s marketing for non-profits. This book was a response to the growing competition for donations developing among rival charitable organizations, and proposed that these organizations adopt mainstream marketing techniques from the business world to gain a competitive advantage. Much like businesses, a charitable organizations success is based largely on the perception of how well it functions in its efforts to deliver its final product. As a result, donors are more apt to donate to organizations whom they feel will make the most out of their donation. The article argues that charity organizations shift perspectives in their favor by using techniques to determine the wants and desires of their donor group, and then redesigning their platform to fit those needs. In this regard, charity organizations use market testing just as mainstream businesses do. In this regard, it’s interesting as it seems that charitable organizations are image conscious to the extent that donors are determining specific components of where the donations are going. In my own experience I can see how this is true. I want to donate to organizations that I can align my identity with and that is accomplished through persuasion. The persuasive aspect of charitable organizations gives one further insight into the motivations behind donors. It’s almost a democratic process of inclusion and exclusion, and to assume that it as simple as a group of people coming together to support a specific cause is missing the intricacies of the situation. #3 Advertising Analysis The first advertisement ‘Trocaire's Lent TV ad for Gender Equality’ features a camera filming a number of female babies as a voiceover talks about the horrors they will experience in their lives. I can see how this advertisement would be affective to people already engaged in the woman’s rights movement, but as an outside observer I didn’t find it affective. The ending seemed melodramatic. One could even make a claim that the advertisement seems more like a parody of over-serious public service announcements. The second advertisement ‘Oxfam - Be Humankind TV advert’ seems to be a good example of the way marketing has been co-opted to promote charities. The ad is effective as it targets a wide-array of causes – injustice, poverty, crime – without giving any specific details. It is entertaining to watch and it empowers the viewer with the idea that they can change things. However, the causes are so broad that it’s impossible to merely feel for anything specific. Who doesn’t want to stop injustice? The terms seem to be broad as a means of marketing to as many people as possible. The third advertisement is Oxfam’s ‘What's your ethical rhythm?’ This advertisement is as equally appealing as the previous Oxfam commercial. This one seems to be targeting a more specific group of people. The off-beat cartoon characters and the jazz music are meant to create an image of uniqueness and social responsibility. By identifying with this art and these characters the viewers are then in the know and they too are ethically responsible. In this regard, finding you ethical rhythm is a call to the viewers to become more socially-responsible in their own improvisational way, as it will ultimately mean they are more unique and hip. The fourth advertisement ‘NSPCC DRTV advert’ is effective as it uses sound film techniques to place to the viewer in the position of the child and elicit their empathy. The black and white is meant to symbolize the child’s outlook on life. #4 Donor Recruitment and Development An August article in the Charity Times ‘To Have and to Hold’ (charitytimes.com) details an insider’s perspective on the issues related to donor recruitment and development. It seems that a major concern in this regard is the extent to which charitable organizations should spend time recruiting new donors or attempting to retain the donors they have currently. The article details the importance of retention, as it costs as much as 10 times as much to recruit a new donor as it does to retain one. Donors who have been retained are also more prone to increase their donations as time passes. A number of methods of donor retention are examined. Again, it seems that much of donor recruitment and retention is tied into marketing and business principals. For instance, in retention it’s important to develop personal relationships with the customer. The organization should find out the best time to contact them, and keep in reasonable contact with them in appropriate ways. An example of adding a personal touch to donor contact is sending letters with a personal signature attached. While donor retention has traditionally been the predominant concern of charitable organizations, the advent of the internet has slowly shifted focus towards recruitment and small donations from large amounts of people. Websites like clickandpledge.com allow charity organizations to pay a small fee and set up a web-based donor platform on their website. Visitors to the charity organizations site then just click on the platform and pledge a specified amount of money which goes into the account of the charity. Methods like this have made charitable donations much more fragmented. It’s interesting to consider the sociological ramifications for this; for instance, are donor’s interests motivated by their community ties, or ethical devotion to the world community. Will the ease of donation engender a more globalized form of altruism? These are all issue worth considering in the new millennium. #5 Fundraising From Individuals Fundraising from individuals generally involves a number of established market strategies. With the advent of the internet these strategies have understandably shifted. A recent article in SOFII titled ‘Fundraising from Individuals’ claims that as much as 85% of donations to charitable organizations are from individual donors. With such a high percentage the need to develop effective marketing strategies to reach these individuals has led charitable organizations into the development strategies. Some of them, such as direct mail, telephone advertising, and face-to-face donation recruitment have a long entrenched history of use by charitable organizations. Other methods of raising funds from individual donors are more novel. These include Electronic Fundraising. This is a method that combines modern day technology and established marketing techniques to achieve donor action. In reviewing some of the most prominent electronic fundraising campaigns, this method seems to be the most effective in capturing the shifting nature of donors from large benefactors to small and varied groups of people. Some of the most effective electronic fundraising campaigns have been the Atheist Bus. A U.K. based campaign where the slogan, ‘There probably is no god. So stop worrying about it and get on with your life,’ was included on major busses in downtown areas. Viewers were directed to a click and pledge type site where they were then asked to donate. The campaign was so successful that it exceeded expectations by 27X. Another effective means of Electronic fundraising to individuals was the United Way impact calculator. This calculator allowed individuals to put in the dollar sum they wanted to donate. The calculator would then determine how far their donation would go to help the charity and list it below – ‘$250 will save five lives and feed three people.’ This method addresses donor concerns with the effectiveness of charities directly. #6 Fundraising in an Economic Recession Just as businesses have been hit by the financial recession so have charitable organizations. With the lack of income produced by individuals and corporations, and the instability of the market many funds that previously would have been allocated for charity have now been devoted ensuring the financial stability of the donors. Even in difficult economic times charity organizations have found ways to market themselves. In a recent book titled Ask Without Fear! Marc Pittman details a number of approaches that have been effective in reaching out to donors in the recession. Pittman argues that charity organizations need to consciously acknowledge the economic downturn, however not to apologize for needing the funds. He also stresses not to lose the motivation to seek new donors, as even in tough economic times they continue to exist. It’s necessary to convey to donors that the organization’s aims are highly practical. Also that even in rough economic times the causes they are fighting for still exist. It’s also important to continue to seek the support of major corporations and continue to remain in contact with them. Failing to do so can result in the charitable organization being removed from the corporate sponsors list, and after this occurs regaining them as a donor is increasingly difficult. As discussed in an earlier entry, it’s important for charitable organizations to adapt to the changing times and develop diversified ways of collecting donations. With the advent of web 2.0 and click and pledge platforms, it’s becoming increasingly necessary for organizations to reach out to people through social networking sites such as Facebook, and Twitter, and to include methods of donation in which allow donors to give easily and safely. Of course the ever-increasing need to shift focus toward large numbers of donors who may only be able to give a small amounts individually, but as an aggregate can contribute significant and meaningful sums. #7 Corporate Giving While individual giving has a multitude of motivations behind, it seems that corporate giving is similarly complicated. In attempting to formulate an understanding of the motivations of corporations in donating to charitable organizations, Navarro (1988) discusses the conservative and the liberal perspectives. He argues that the conservatives see corporate giving largely in terms of taxes and that much of what motivates corporate giving is a means of profit, therefore tax exceptions for corporate donations should be limited. There is also a conservative argument that corporate donation isn’t entirely for profit maximization, but a means of the stockholders to reduce the overall financial intake allotted to upper-level management. Even if the tax breaks from corporate giving don’t contribute directly to profit maximization, the corresponding prestige and public exposure could also be linked to promoting the company, and ultimately tied to the bottom line. The liberal perspective holds that because of their visibility to the public, corporations should donate to charities out of a sense of social responsibility. This argument that corporate donations exist for reasons other than profit maximization can be understood on a number of levels. Some corporations may give out of a sense of customer support. That is, their clientele expects the corporation to act in ways that correspond with their ethical standards. An instance of this would be organic grocery stores donating to money to support organic farming. Another example of social responsibility is the situation of Ben & Jerry’s where the company’s strong ties to the community were a primary factor in the company’s early success, the effect of which was the trend of social responsible donations and corporate outlook was intertwined into the foundational structure of the company. #8 Charity vs. Philanthropy Philanthropica.com defines the difference between the two concepts such that, “Charity refers to the relief of suffering while philanthropy is the seeking out of the root causes of social problems and solving them (Philanthropica 2006).” While the exact terminology has different contextual interpretations, the general use of charity is as an immediate act of giving. Of course, the classic example is the man who gives the homeless person some change from their pockets. It’s oftentimes remarked that they’re only contributing to the problem, as it is enabling the homeless to continue life without seeking employment or shelter. The true solution would be to develop programs that promoted education and welfare aid for the homeless to get them back in the social system. This later categorization is the work of the philanthropist, as it offers a long-term salutation, rather than a short term fix. The exact division between philanthropy and charity can sometimes be hard to determine. While the activists of the 1960s believed they were acting philanthropically in donating to hungry people in Africa, today the problem still exists and the need for more efficient infrastructure and environmental regulation is needed to ensure the continued sustenance of large amounts of people throughout the area. Another distinguishing characteristic of philanthropists is that they are often not recognized immediately for their actions. It takes planning and knowledge to understand the future importance of actions today. While charitable donations to groups in Darfur or Haiti might make news headlines, the people working tirelessly to rebuild the country’s infrastructure and ensure that a disaster on such a scale never occurs again will not be recognized with the same panache. While this is not to say that charitable donations are only self-serving and don’t serve a purpose, as immediately relief is oftentimes what is needed; charity without philanthropy is ultimately useless. #9 Positioning and PR The most effective ways for non-profits to position themselves through public relations is to adopt already established marketing techniques and then tailor them to the specific non-profit. One of the most important things for a non-profit to do is develop well-defined outlook on the type of image they are attempting to position. Once this is defined and a succinct mission statement has been developed, everyone in the organization should become familiar with the aims and goals contained therein. It’s then necessary to begin an outreach program to members of the news media. In this instance it’s necessary to match the needs of the company to the budget and then search for available outlets that fit this requirement. In ‘Non-Profit PR’ the authors discuss the means by which news media advertisements can be utilized, “The media is always looking for new and exciting people or stories to cover. Non-profits are full of wonderful human interest stories that the media would love to help you tell.” It’s also important to keep the organization’s news promotion in-line with the long term goals of the company. The staff and volunteers need to be aware of the image the organization is attempting to portray at all times. Depending on the size of the non-profit, it’s necessary to have a community spokesperson prepared. This person will be well-versed in the non-profit organizations goals and current on-goings and function to present the company in the most positive light possible to the general public. It’s also necessary to be pro-active in creating news interests. While the news might not necessarily understand the angle to take on one of the organization’s out-reach events, pitching story ideas in-house and then approaching news outlets with the ideas maybe an effective means of gaining outside exposure. The organization could even consider co-marketing an event with a similar non-profit organization for public exposure. #10 Ethical Issues in Fundraising This entry looks at two case studies in examining a number of ethical issues regarding fundraising and identifying ways that some non-profits have policed themselves. The first non-profit is People for the Ethical Treatment of Animals (PETA). This organization ran a campaign that featured women wearing little to no-clothing, in somewhat sexually suggestive positions. The aim of the advertisements was to encourage people not to wear fur, and the scantily clad models were designed as a clever means of illustrating this point. While the advertisements were effective in many regards, they ran counter to the ethical standards of many supporters of PETA. The objections stemmed largely from the feminist claim that the advertisements were sexist and overly-sexualized the female body for the benefit of animal rights. The organization objected to such characterizations and the ads still remain a major component in their marketing approach. In an article in the Christian Today ‘The Art and Ethics of Fundraising (2001)’ author Ken Waters discusses ethical concerns a growing number of people have with the way major Christian out-reach organizations have marketed to individual donors. The major concern is related to the mail-order advertising in which the company engages. Critics argue that the Christian organizations use overly sensationalized tactics to engage recipients and coerce them into donating. For instance, some of the mail sent out exaggerates the eminent danger of many situations, and claims that a person’s donation can actually go a lot farther than it actually can. One need not think any farther than the popular television advertisements that claim you can save a child’s life for as little as $10 a month. Christian fundraising has a long history of succumbing to ethical temptations, and indeed there have been a number of ethical manifestos developed to help curb the problem. One of the most famous was a 1979 one issued in Religious Communication Today. References Charity Times ‘To have and to hold – donor recruitment and retention’ http://www.charitytimes.com/pages/ct_features/august06/text_features/ct_august06_feature5_to_have_and_to_hold.htm Hernandez-Murillo, Ruben, Roisman, Deborah ‘Economics of Charitable Giving: What Gives?’ Federal Reserve Bank of St. Louis - Regional Economist, Oct 2005 by “Investing in modern marketing techniques, expertise, & tools would significantly drive fundraising results”. Albawaba.com June 15, 2009, pNA Navarro, Peter. "Why Do Corporations Give to Charity" Journal of Business 61.1 (1988): 65-93 Non-Profit PR http://www.strykerweiner.com/newsletter/nonprofit.htm Philanthropica: The Real Difference Between Charity and Philanthropy October 26, 2006 http://philanthropica.blogspot.com/2006/10/real-difference-between-charity-and.html Pittman, Mark. Ask Without Fear! SOFII ‘Fundraising from Individuals’ http://www.sofii.org/active%20site/Members%20area/Show-FunddirectFromIndiv.html Waters, Ken. ‘The Art & Ethics of Fundraising’ Christianity Today 12/3/2001, Vol. 45 Issue 15, p50. Read More