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Acquiring the New Donor for Nonprofit Organizations: Evidence from a Field Experiment

Using Bonus Trigger Incentives

Sara E. Helms* Timothy M. Diette

Assistant Professor of Economics Associate Professor of Economics

Department of Economics,

Finance, and QA

Department of Economics

Brock School of Business Williams School of Commerce

Samford University Washington & Lee University

800 Lakeshore Drive

Birmingham, AL 35229 Lexington, VA

Voice: 205-726-4110 Voice: (540) 458-8220

[email protected] [email protected]

Betsy Bugg Holloway

Chief Marketing Officer and

Professor of Marketing

Department of Management,

Marketing, and Entrepreneurship

Brock School of Business

Samford University

800 Lakeshore Drive

Birmingham, AL 35229

Voice: 205-726-4109

Fax: 205-726-2464

[email protected]

*Corresponding author. Acknowledgements: Diette is appreciative of the financial support

provided by the Lenfest Summer Research Grant through Washington and Lee University.

Thanks to Russell James and participants at the Southern Economics Association Meetings for

comments and suggestions. All errors are the responsibility of the authors.

Author Biographies

Sara E. Helms is Assistant Professor of Economics and Brock Scholars Program Coordinator in

the Brock School of Business at Samford University in Birmingham, Alabama. Her research

focuses on giving and volunteering behavior, education policy, and health policy.

Timothy M. Diette is Associate Professor of Economics in the Williams School of Commerce

and is a faculty member of the Shepherd Program for the Interdisciplinary Study of Poverty and

Human Capability and the Africana Studies Program at Washington & Lee University in

Lexington, Virginia. He is also an affiliate member of the Research Network for Racial and

Ethnic Inequality at the Social Science Research Institute at Duke University. His research

focuses on education policy, health policy, and giving and volunteering behavior.

Betsy Bugg Holloway is Professor of Marketing in the Brock School of Business and Chief

Marketing Officer for Samford University in Birmingham, Alabama. She serves on the editorial

review board of Journal of Marketing Theory and Practice, and her research interests include

services marketing, retailing, and consumer behavior.

Acquiring the New Donor for Nonprofit Organizations: Evidence from a Field Experiment

Using Bonus Trigger Incentives

Abstract

There is a rich literature on fundraising and charitable giving by and for nonprofit organizations

which considers incentives applied to existing and potential donors. We add to the existing field

experiment research body in two important ways. First, we establish results for the impact of

incentives on acquisition of new donors for organizations which do not have clearly partisan

appeal, unlike much of the existing work. Second, we consider the influence of bonus trigger

incentive gifts, which fall somewhere between matching gifts and seed gifts. We find that

promising that a bonus gift of $10 be added to each donation significantly influences the

acquisition and behavior of new donors. While the $1 and $5 incentive conditions did not impact

the sample of potential donors, the promise of the $10 bonus increased the likelihood of

acquiring a new donor and likely changed the distribution of the new donors’ gifts.

JEL Code: C93 Field Experiments; D64 Altruism; Philanthropy; L31 Nonprofit Institutions,

NGOs; M31 Marketing

Keywords: donations; nonprofit; field experiment; new donors; incentives

Acquiring the New Donor – Page 2

Individuals in the United States donate nearly $300 billion annually to charitable organizations

and purposes, and more than one-quarter of the population volunteers each year (Giving USA

2011; BLS 2012). The business of raising money for nonprofits involves consulting firms, and

the variety of ways to make the “ask” (that is ask for money) is astounding. Economists have

been working to understand what affects charitable behavior, through the use of a variety of

research methods. Using large datasets to test hypotheses, experimental studies to isolate which

factors influence behavior, and field studies to observe real-world responses to varying

conditions, the full picture of donor behavior continues to develop. Despite the time, energy, and

resources committed to understanding donor behavior, there is much left to be done.

This study aims to understand the impact of bonus trigger incentive gifts (a low-dollar form of

seed money) on new donor acquisition for a health-related nonprofit firm providing highly-

visible support to households in need. We add to the literature in a few important ways. First,

while numerous studies consider the effect of matching grants and seed grants, we consider

another option available to nonprofit organizations. We use bonus trigger incentive gifts to

prompt donations by potential donors. Second, many if not most existing studies focus on

nonprofit organizations that appeal to a particular demographic; they consider donations to

public radio, environmental preservation organizations, and universities, for a few examples. We

instead offer evidence from an organization that arguably maintains appeal across demographic

and political interests, which is more applicable for similarly-identified nonprofit organizations.

Background and Literature Review

The existing body of economic research on the factors which influence both the acquisition and

behavior of new donors, and the maintenance and behavior of existing donors, shows the


complexity of the question. While both laboratory and field experiments are part of this research

body, we focus here on field experiments. List (2008) promotes the use of field experiments over

laboratory experiments when considering donor behavior, arguing that field experiments get

much closer to the true decision process. For a detailed history of the study of the economics of

charity, see List (2011).

In the existing literature, most studies focus on matching schemes, rebate schemes, and seed (or

lead donor) schemes. Matching grants match the donor’s gift at some level, usually on the order

of $1 match per $2 gift, or smaller. Rebate campaigns promise to refund any gifts if the

fundraising does not achieve a targeted dollar amount. Seed grants do not match to donors’ gifts,

but add to the overall total fundraising goal. One last (albeit less studied) strategy is the common

“gift with donation” set up, wherein the nonprofit organizations give donors “token” gifts in

appreciation of the donation. Examples include access to early ticket sales and events for a

symphony, or a coffee mug, and the range included between the two.

When considering the impact of the variety of methods used by nonprofit organizations to raise

funds, there are two important dimensions to consider. First, organizations are interested in

which factors influence the probability of giving and the size of the gift for a particular

campaign. Second, organizations must also consider the impact of the current campaign on

future donor behavior of both the newly-acquired and existing donor pool, as nonprofits typically

have repeated interactions with these pools (see Landry, et al (2006) for additional discourse).

Using student donations to an educational fund, Meier (2007) finds that matching incentives

increase giving in the current period, but may decrease future giving for match recipients in later

periods. Meier’s study highlights an important hazard in manipulating incentives for donors—


one must consider both the current and subsequent effects of the incentive, as long-run outcomes

may differ from current outcomes.

In addition to the interplay between the impact on new and existing donors, charities must also

consider the advantages of offering matching or seed grant incentives to donors. Andreoni (2006)

develops a theory which addresses the motivation for advertising seed gifts. He argues that large

gifts announced in conjunction with fundraising drives, which he terms “leadership giving,”

provide a signal to donors about the credibility of the charity. List and Lucking-Reiley (2002)

test Andreoni’s theory using a university fundraising campaign, and find that increasing seed

money increases contributions. As explained in Karlan and List (2007), matching grants are

effective because they lower the price of giving, they serve as credibility signals, and they signal

that now is the right time to give. Similarly, Bekkers and Wiepking (2011) describe matching

offers as signals for the efficacy of the gifts, and as having a “legitimizing effect” indicating the

trustworthiness of the organization (p. 943).

Karlan and List’s (2007) seminal paper on matching grants and giving behavior focuses on a

nonprofit organization they describe as sufficiently politically motivated that “giving might be a

form of political activism” (p. 1775). There are two major implications of their study for the

current work. They find that matching offers increase the propensity for giving and the revenue

per solicitation. Second, they find that relative to a $1:$1 match ratio, more generous matches of

$3:$1 and $2:$1 do not further alter behavior. Effectively, we extend their study by moving in

the other direction. If larger matches do not improve fundraising, perhaps even smaller matches

can yield similar results.


Several studies exploit fundraising by local public radio stations to expose potential donors to

different conditions. Croson and Shang (2008) find that priming donors with relative social

position changes the size of the gift. Eckel and Grossman (2008) compare the effects of match

grants and rebates, and find that matching grants are more effective. While rebates led to a net

loss for the organization, the matching gift led to increased total contributions. They also find

“that the match is mainly effective because it attracts more donors, but not larger donations” (p.

8). Using the Giving in the Netherlands Panel Study, Bekkers (2005) finds that matching offers

more effectively increase giving compared to rebate offers. Similarly, he finds that the increased

giving comes about through additional donors but not larger gifts. Perhaps closest to our study

design, Rondeau and List (2008) use a pool of existing donors to the Sierra Club to consider the

impact of matching and challenge gifts. They find that challenge gifts, designed appropriately,

increase giving, but that matching did not.

Mail-based fundraising campaigns are a common research topic. They are rather low-cost to

implement, and they provide many opportunities for varied treatments. Hager, et al, (2003)

consider the responsiveness of the organizations themselves to a mail-based survey, and explore

what factors might encourage nonprofit executives to return a survey. They find that a $5 gift

(given regardless of response), the $5 gift plus the promise of a $50 to the organization, and no

such incentive do not lead to differential response rates.

Rasul and Huck (2010) explore the importance of transactions costs with giving in response to

mail solicitations. They explore multiple types of transactions costs, and find that lowering ex

post transactions costs through repeated appeals to non-donors from the initial plea leads to

significantly more giving. Along the same lines, Chen, et al, (2006) examine an online


fundraising campaign, and find that any incentive led to greater click-through for the campaign

relative to no incentive.

Other studies aim to get at the many complex mechanisms affecting donor behavior. One study

on university fundraising finds that even the previously-ignored impact of the attractiveness of

the solicitor matters in door-to-door fundraising (Landry et al, 2006). Martin and Randal (2008)

study the social feedback inherent in observable and visible fundraising. Using a glass box to

collect donations for an art gallery, they find that when the box is staged with smaller currency,

donors give less than when it is staged with larger-value currency. Together, these studies lend

insight into the social aspect of charity.

Despite the abundance of existing studies, we aim to fill gaps in the understanding of factors

influencing donor behavior.

Experiment Design

In coordination with a local charity office, we implemented a randomized control experiment in

a mail campaign targeted at acquiring new donors.1 The charity is a large-scale, nationally-

recognized, health-related organization whose work is viewed as nonpartisan. The charity

normally uses purchased mailing lists to target potential new donors. In the fall of 2010, the

charity obtained three mailing lists of individuals from commercial companies with a total of

14,023 addresses. We examine whether a potential new donor is more likely to contribute to a

charity if their donation will also bring the charity an additional gift, which we term the bonus

trigger incentive. The additional (bonus) dollars are triggered by the individual donor gifts, thus

providing greater incentive to give. In addition, we explore whether the amount of a donation


varies conditional on the presence of an additional gift and the amount of the additional gift to

the charity. An external non-profit foundation provided funding for the bonus trigger gifts.

For each of the three mailing lists, we randomly assigned one of four conditions to each mailing

address. The control group received a two page letter from the Executive Director of the charity

with a story of an individual who had benefited from the work of this charity in the past. The

three treatment groups each received an identical letter to the control group with one additional

sentence bolded at the bottom of the first page stating, “In addition, the name of nonprofit

foundation will add $x to your donation, so your gift can have an even greater impact!” For the

three incentive groups, x was 1, 5, and 10 respectively. The charity then provided the results of

the mailing, including (for each household) the amount of the donation and whether the mailing

address was in the control or one of the three treatment groups.

Results

We first explore the response to the bonus trigger incentive by sequentially testing for

differences in the means and distribution of donations across incentive groups for three

questions. First, does the unconditional average revenue per mailing unit vary by incentive

group? Second, does the response rate to the mailing vary by incentive group? And finally,

conditional on the new donor making a gift, does the average donation amount vary by incentive

group? We conclude our analysis with an empirical estimation for each of these three questions

that adds binary control variables for the specific source list of the mailing address.

Unconditional Average Gift Amount

We examine the unconditional average gift donation, which is the average including households

which gave $0, and report the results in Table 1. By design the 14,023 mailing addresses are


approximately evenly distributed into the four conditions with the number of mailing addresses

by incentive group ranging from 3,493 addresses to 3,515 addresses. In Panel A, the mean

donation per mailing unit varies between $0.103 for the $1 incentive and $0.218 for the $10

incentive with the overall average of $0.142. Due to the low response rate typical for this type of

solicitation, these mean gifts are quite low. A formal cost benefit analysis of the mailing would

require understanding both the explicit cost of the mailing as well as expected future gifts

generated by acquiring first-time donors. The total amount paid by the foundation funding the

bonus trigger gifts was $481.

[Table 1 about here.]

Panel B displays the results from the t-test for whether the unconditional means vary by

incentive group. The final column in Panel B reports results of the Mann-Whitney rank-order

test for whether the samples have the same distribution and we report the p-values for the null

hypothesis of identical distributions. The first three rows show the results for each incentive

group relative to the control (or no bonus trigger incentive) group. The mean difference column

reports the mean of the relevant treatment group less the mean of the control group. While

unconditional means for the $1 and $5 bonus trigger incentive groups are lower than the control

group, they are not statistically different from the control group. We report tests for both tails as

it is theoretically possible that some potential donors are offended by the bonus trigger incentive

gift from the foundation to the charity and the incentive actually harms the unconditional mean

donation. The $10 bonus trigger incentive group has a statistically significant larger average gift

per mailing unit than the control group. The subsequent rows test whether the $5 or $10

incentive unconditional means are statistically different than the $1 incentive. There is no

difference between the $1 incentive and the $5 incentive, but the unconditional mean donation in


the $10 incentive ($0.218) is over twice as large as that of the $1 incentive ($0.103), and the

difference is statistically significant. The final row in Panel B displays the result that the

unconditional mean donation of the $10 incentive is also statistically larger than the $5 incentive.

The results for the rank order tests of the distribution of donations mirror the results for the

unconditional means. The $10 bonus trigger incentive group is statistically different than all

other groups. The $1 and $5 incentive distributions do not statistically differ from each other or

the control group.

Response Rates by Incentive Group

In many cases, generating a response from a potential new donor may be more important to a

charity than the actual gift amount. The new donor presents an opportunity for additional future

giving. The overall response rate is 0.7 percent with response rates varying between 0.57 percent

for the no incentive group to a high of 1 percent for the group in the $10 incentive group. This

level of response is consistent with those found in other studies.2 Panels A and B in Table 2

mirror the results from Panels A and B of Table 1. Those households in the $10 bonus trigger

incentive group are statistically significantly more likely to respond with a donation than either

of the other incentive groups or the control group. In addition, the $1 and $5 incentive are not

statistically different from each other or from the control group. These findings suggest that a

bonus trigger incentive threshold is required with this type of offer to elicit a response from the

targeted new donor.


Average Gift Amount among New Donors


We now turn to examining the average gift amount conditional on the potential donor responding

with a donation. Theoretically, the incentive may increase or decrease the average size of the

donation. The bonus trigger incentive is a fixed amount that the nonprofit foundation will make

if the individual responds with a donation to the charity. The incentive may increase the

likelihood that the marginal prospect will give a donation. This individual may give a very small

amount with the goal of entitling the charity to the additional gift from the foundation and

therefore lower the average donation. The bonus trigger incentive could increase the average gift

amount if individuals feel pressure to give more in light of generosity of the foundation, or

because they view it as a leadership gift. Panel A and Panel B of Table 3 appear to support to the

theory that the average gift will be smaller. The mean gift among the control group is $22.75,

the highest of the four groups. The mean gift of the $1 incentive group is $17.19 and statistically

smaller than the average gift among those in the control group. None of the other comparisons

yield differences in average donations between incentive groups. The rank order test reported in

the last column of Panel B suggests that the $10 incentive group has a different distribution of

gifts than the control group. As shown in Panel A, the $10 incentive group received one $100

donation while the maximum gift for all other incentive groups was $50.


Controlling for the Source of the Mailing Address

The purchased mailing lists came from three different consumer-based businesses. The customer

base of these three businesses may be systemically different from each other. Therefore, our

final analysis predicts the unconditional amount of the gift, likelihood of giving, and amount of

the donation conditional on giving, controlling for the incentive group as well as an indicator


variable for two of the three lists. The reference group is comprised of those in the control group

and with addresses from the company providing List 1. The results are in Table 4. Column (1)

contains the linear probability estimates from an ordinary least squares regression of the

likelihood that a letter will generate a donation. As previously mentioned only a small

percentage of letters resulted in a donation to the nonprofit. Due to the typical concerns

regarding linear probability models we also estimate the probability of responding to the direct

mailing using maximum likelihood estimation, assuming the specifications take on a probit

distribution. The marginal effects reported in column (2) are estimates of the variable

contributions evaluated at the sample means for all the other controls. Finally, we use ordinary

least squares to estimate the effect of the incentive groups and the source of the mailing list on

the gift amount for the 98 mailing units that responded with a donation. These results are

reported in column (3).


For each of the three estimations, the results are consistent with findings from the tests of

differences in means. From column (1), the $10 bonus trigger incentive increases the likelihood

of a donation relative to the excluded incentive group—the control group with no bonus trigger

incentive. The results from the χ2 tests confirm that the $10 incentive group is distinct from the

$1 and $5 incentive groups. In addition, we see that each of the three sources of the mailing

addresses is distinct from each other. As we designed the experiment to equally distribute the

incentive groups within each of the mailing lists, we did not expect that controlling for the

mailing lists would change our results for the incentive groups. However, due to the source of the

confidential lists, our results are consistent with the idea that those already sympathetic to the


general mission of the nonprofit we worked with are more likely to give, while those with no

connection to the issues addressed by the nonprofit will be less likely to give.

The results for the likelihood of giving a donation also match our findings from Table 2. Again

the $10 incentive group is statistically significantly more likely to respond than either the control

group or the $1 or $5 incentive groups. The other three groups do not have a differential effect

on the likelihood of giving. Each of the three lists is again significantly different from each

other. Finally, the OLS regression of the amount donated conditional on giving suggests that

none of our observable characteristics influence the donation amount.

Conclusions

Acquiring new donors is an important goal for many charities looking to increase contributions

in order to expand the assistance they provide in communities. One potential incentive

mechanism is to find a foundation or individual willing to increase the value of a new donor’s

gift. Matching gifts are commonly used, but impose risk upon the foundation if the match does

not include a specific total limit on either the match per gift or total amount to be matched across

all givers. An alternative is to provide a bonus trigger incentive, a fixed amount to be added to

the gift of a new donor. We examine the influence of $1, $5, and $10 bonus trigger gifts on the

mean unconditional gift amount, the likelihood that individuals respond with a gift, and the

average gift conditional on a donation being received. The results from a mailing to over 14,000

household units suggest that the additional gift can matter, but only for the largest promised

bonus trigger gift within our experiment, $10. Additional research is needed to better understand

what bonus trigger gift amounts may be related to discontinuous jumps in the likelihood of

giving. The incentives did not alter the average gift conditional on giving, but if the goal of the


nonprofit is new donor acquisition then the promise of a fixed dollar addition to the initial

donation may be beneficial to charities.


Endnotes

1 We acquired the appropriate Institutional Review Board clearance for the study through

Samford University’s IRB process.

2 For example, Eckel and Grossman (2008) had a response rate of 0.5% for prospective donors in

their study, and 0.9% for lapsed donors.


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Tables

Table 1

Comparison of Average Gift Amount

Full Sample

Panel A

Unconditional Mean Donation per Mailing Unit by Incentive Group, in $US

Mean Std. Dev. Obs.

No Incentive $0.130 1.986 3,504

$1 Incentive $0.103 1.593 3,493

$5 Incentive $0.115 1.731 3,515

$10 Incentive $0.218 3.234 3,511

Full Sample $0.142 2.233 14,023

Panel B

Test for Differences by Incentive Group

T-Test of Unconditional Mean Donations and Rank Order Tests of the Distribution

Mean

Difference

Pr(T<t) Pr(|T|>|t|) Pr(T>t) Mann-

Whitneya

Versus No Incentive

$1 Incentive -0.027 (0.269) (0.538) (0.731) (0.871)

$5 Incentive -0.015 (0.371) (0.742) (0.629) (0.768)

$10 Incentive 0.088 (0.915) (0.170) (0.085)* (0.044)

**

Versus $1 Incentive

$5 Incentive 0.012 (0.617) (0.765) (0.383) (0.894)

$10 Incentive 0.115 (0.970) (0.060)* (0.030)

** (0.063)

*

Versus $5 Incentive

$10 Incentive 0.103 (0.951) (0.097)* (0.049)

** (0.084)

*

aTest for the probability that the samples have the same distribution. Results are consistent with

Kruskal-Wallis Rank Order Test. p-value in parentheses indicates null hypothesis of identical

distributions.

Notes: significant results in bold; *** p<0.01, ** p<0.05, * p<0.1


Table 2

Comparison of Response Rates by Incentive Group

Panel A

Average Response Rate by Incentive Group

Mean Std. Dev. Observations

No Incentive 0.0057 0.0753 3,504

$1 Incentive 0.0060 0.0773 3,493

$5 Incentive 0.0063 0.0789 3,515

$10 Incentive 0.0100 0.0994 3,511

Full Sample 0.0070 0.0833 14,023

Panel B

T-Test for Differences of Response Rates by Incentive Group

Mean

Difference

Pr(T<t) Pr(|T|>|t|) Pr(T>t)

Versus No Incentive

$1 Incentive 0.0003 (0.5662) (0.8676) (0.4338)

$5 Incentive 0.0006 (0.6176) (0.7647) (0.3824)

$10 Incentive 0.0043 (0.9785) (0.0431)**

(0.0215)**

Versus $1 Incentive

$5 Incentive 0.0003 (0.5526) (0.8947) (0.4474)

$10 Incentive 0.0040 (0.9685) (0.0630)* (0.0315)

**

Versus $5 Incentive

$10 Incentive 0.0037 (0.9585) (0.0831)* (0.0415)

**

P-Value in parentheses, Significant results in bold, *** p<0.01, ** p<0.05, * p<0.1


Table 3

Comparison of Average Gift Amount

Conditional on Giving a Donation

Panel A

Mean Donation per Mailing Unit by Incentive Group, in $US

Mean Std. Dev. Observations Min. Max.

No Incentive $22.75 13.618 20 10 50

$1 Incentive $17.19 11.609 21 1 50

$5 Incentive $18.41 12.188 22 10 50

$10 Incentive $21.85 24.347 35 5 100

Full Sample $20.27 17.580 98 1 100

Panel B

Test for Differences by Incentive Group

T-Test of Conditional Mean Donation and Rank Order Tests

Mean

Difference

Pr(T<t) Pr(|T|>|t|) Pr(T>t) Mann-

Whitneya

Versus No Incentive

$1 Incentive -$5.56 (0.083)* (0.167) (0.917) (0.150)

$5 Incentive -$4.34 (0.141) (0.282) (0.859) (0.213)

$10 Incentive -$0.89 (0.440) (0.881) (0.560) (0.089)*

Versus $1 Incentive

$5 Incentive $1.21 (0.631) (0.739) (0.370) (0.701)

$10 Incentive $4.67 (0.793) (0.415) (0.207) (0.942)

Versus $5 Incentive

$10 Incentive $3.45 (0.730) (0.540) (0.270) (0.569)

aTest for the probability that the samples have the same distribution. Results are consistent with Kruskal-Wallis

Rank Order Test. p-value in parentheses indicates null hypothesis of identical distributions p-value in parentheses, ^ used Chi-squared probability with ties, Significant results in bold, *** p<0.01, ** p<0.05,

* p<0.1


Table 4: Multivariate Estimation Results

(1) (2) (3)

Variables

OLS:

Donate?

Probit:

Donate?

OLS:

Donation Amount

Conditional on Giving

$1 Incentive 0.0003 0.0006 -6.0426

(0.8673) (0.7802) (0.2849)

$5 Incentive 0.0005 0.0007 -3.6438

(0.7652) (0.7456) (0.5082)

$10 Incentive 0.0043** 0.0040** -0.2574

(0.0421) (0.0436) (0.9589)

List 2 0.0027** 0.0046** 9.1016

(0.0369) (0.0404) (0.1497)

List 3 0.0105*** 0.0109*** 4.2082

(0.0000) (0.0000) (0.4566)

Constant 0.0013 17.5289***

(0.3045) (0.0087)

χ2 Tests

$1=$5 0.8956 0.9642 0.6637

$1=$10 0.0646* 0.0787* 0.2482

$5=$10 0.0841* 0.0854* 0.4833

List 2=List 3 0.0000*** 0.0000*** 0.3125

Observations 14,023 14,023 98

R-squared 0.0033 0.0408

Robust p-values in parentheses, *** p<0.01, ** p<0.05, * p<0.1

(1) Linear Probability-Donation; (2) Probit-Donation; (3) OLS-Amount; Column

(2) displays the marginal effect of the variable calculated at the mean value of all

the other variables.

Acquiring the New Donor for Nonprofit Organizations ... · Using the Giving in the Netherlands...

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