How Nonprofits can Increase Fundraising Revenue through Behavioural Economics
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Bloomerang webinar presented February 2016
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How Nonprofits can Increase Fundraising Revenue through Behavioural Economics
- 1. @LeahEustaceBloomerang: Behavioural Economics February 2016 HOW NONPROFITS CAN INCREASE FUNDRAISING REVENUE THROUGH BEHAVIOURAL ECONOMICS
- 2. @LeahEustaceBloomerang: Behavioural Economics February 2016 Say what?
- 3. @LeahEustaceBloomerang: Behavioural Economics February 2016 Behavioural economics be·hav·ior·al ec·o·nom·ics noun a method of economic analysis that applies psychological insights into human behavior to explain economic decision-making. (wikipedia)
- 4. @LeahEustaceBloomerang: Behavioural Economics February 2016 In other words … What impact does your subconscious have on the decisions you make? And, how can we use that knowledge to increase our fundraising revenue?
- 5. @LeahEustaceBloomerang: Behavioural Economics February 2016 How we think we make decisions @LeahEustace #NPStoryConf
- 6. @LeahEustaceBloomerang: Behavioural Economics February 2016 How we actually make decisions @LeahEustace #NPStoryConf
- 7. @LeahEustaceBloomerang: Behavioural Economics February 2016 Emotion versus logic Artwork courtesy of Mark Phillips www.bluefroglondon.com
- 8. @LeahEustaceBloomerang: Behavioural Economics February 2016 Emotion versus logic
- 9. @LeahEustaceBloomerang: Behavioural Economics February 2016 Emotional Contagion
- 10. @LeahEustaceBloomerang: Behavioural Economics February 2016 Relevance to Fundraising?
- 11. @LeahEustaceBloomerang: Behavioural Economics February 2016 Scarcity theory Simply put, humans place a higher value on an object that is scarce, and a lower value on those that are abundant. Photo by Matt Wetzler / CC BY-SA 2.0
- 12. @LeahEustaceBloomerang: Behavioural Economics February 2016 I’d better act fast!
- 13. @LeahEustaceBloomerang: Behavioural Economics February 2016 Limited sponsorships, naming opportunities, timelines
- 14. @LeahEustaceBloomerang: Behavioural Economics February 2016 Mere exposure theory
- 15. @LeahEustaceBloomerang: Behavioural Economics February 2016 Reciprocity theory Give Receive
- 18. @LeahEustaceBloomerang: Behavioural Economics February 2016 Social Proof Social proof is a psychological phenomenon where people assume the actions of others in an attempt to reflect correct behavior for a given situation. (wikipedia)
- 19. @LeahEustaceBloomerang: Behavioural Economics February 2016 Social proof
- 20. @LeahEustaceBloomerang: Behavioural Economics February 2016 “Every day, people just like you … “
- 21. @LeahEustaceBloomerang: Behavioural Economics February 2016 Authority We feel a sense of duty or obligation to people in positions of authority.
- 22. @LeahEustaceBloomerang: Behavioural Economics February 2016 Authority The Milgram experiments
- 24. @LeahEustaceBloomerang: Behavioural Economics February 2016 Anchoring theory The anchoring rule of thumb describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions. Once the anchor is set, decisions are then made by adjusting around the initial anchor, regardless of the legitimacy of the actual anchor. (source: http://disenthrall.co/)
- 26. @LeahEustaceBloomerang: Behavioural Economics February 2016 Has this happened to you? Photo by Ann Larie Valentine / CC BY-SA 2.0
- 27. @LeahEustaceBloomerang: Behavioural Economics February 2016 Campbell's soup sale
- 28. @LeahEustaceBloomerang: Behavioural Economics February 2016 How much jail time? Photo by Ken Teegardin/ CC BY-SA 2.0
- 29. @LeahEustaceBloomerang: Behavioural Economics February 2016 Save 50,000 sea birds “Would you be willing to pay $5….”? $20 “Would you be willing to pay?” $64 “Would you be willing to pay $400…?” $143
- 30. @LeahEustaceBloomerang: Behavioural Economics February 2016 Be thoughtful about what your first ask is
- 31. @LeahEustaceBloomerang: Behavioural Economics February 2016 People look to an anchor to help them make a decision, but they make multiple decisions before making a gift, so there's an opportunity for multiple anchors: “Should I open the package?" "Should I read the letter?" "Should I agree to the meeting?"
- 32. @LeahEustaceBloomerang: Behavioural Economics February 2016 What’s the anchor … in Toronto
- 34. @LeahEustaceBloomerang: Behavioural Economics February 2016 What’s the anchor?
- 35. @LeahEustaceBloomerang: Behavioural Economics February 2016 What’s the anchor? “I don’t want to ask for $1,000,000 and get thrown out of your office, but I don’t want to ask for $100,000 either if $500,000 is more your speed.”
- 36. @LeahEustaceBloomerang: Behavioural Economics February 2016 What’s the anchor?
- 37. @LeahEustaceBloomerang: Behavioural Economics February 2016 What’s the anchor?
- 38. @LeahEustaceBloomerang: Behavioural Economics February 2016 What’s the anchor?
- 39. @LeahEustaceBloomerang: Behavioural Economics February 2016 • Impact • Break the cycle • You make the difference • The time to act is now • Our programs work • There’s no better place to ask for help than YSB • Saving lives … and look at the eyes
- 40. @LeahEustaceBloomerang: Behavioural Economics February 2016 Extremism aversion
- 42. @LeahEustaceBloomerang: Behavioural Economics February 2016 Leah Eustace, ACFRE Chief Idea Goddess, Good Works leah@goodworksco.ca www.goodworksco.ca @LeahEustace #NPStoryConf
Editor's Notes
- Let’s start with how we make decisions. If you ask the average person on the street to describe how they make a decision, they’d describe it something like this (read it through) It’s a very logical process
- In actual fact, decision making isn’t logical at all Research has shown that our subconscious makes a decision a full seven seconds before we are consciously aware that we’ve made a decision And, as I’ll talk about in a minute, we’re completely incapable of making decisions if our emotions aren’t engaged
- Over the last 50 years or so, we’ve learned more about what goes on inside our brain than all of the 5,000 years of human civilization Now we know that all our actions and decisions, good and bad, are guided primarily by intuition Our conscious brain has a very small part to play in how we think and act Decisions are activated by unconscious part of our brain (called the limbic system) . The rational part, which governs our logical thoughts and the language, only comes into play afterwards to justify our decision. In other words, we make giving decisions emotionally, then justify them logically Here’s an example: The CEO of a company decided not to renew the contract with their telecommunications provider even though they were the cheapest. Puzzled by that the account manager sought out the CEO to find out why It turned out that the reason was because the CEO’s daughter had a very bad experience with the provider on her pre-paid phone The CEO didn’t want to deal with a company that treats its customers that way In other words, his decision was completely driven by an emotional response As Professor Raj Raghunathan from the University of Texas puts it: “We are ruled by our emotions first, and then we build justifications for our response. We want to be considered scientific and rational, so we come up with reasons after the fact to justify our choice”
- Back to how our brains make decisions how can we be so sure that our intuition and emotions are calling the shots when we make a decision? An interesting finding comes from neuroscientist Antonio Damasio, who studied people who had received brain injuries, in which only the part where emotions are generated was impaired It all started 30 years ago, when Dr. Damasio was visited by a patient named Elliot Elliott had gone through a surgery where part of his brain in the frontal cortex had to be removed because of a small tumour he’d developed Elliot was a successful businessman and had been a model father, husband and citizen After the surgery, something strange started to happen He started taking hours for a simple decisions a normal human being would make in seconds For example, even a decision to shave or not in the morning would take hours as he started analyzing the pros and cons of shaving and the effect it would have on his life This behavior eventually lead his business into bankruptcy and his wife ended up divorcing him Dr. Demasio was able to determine that during the surgery, one important neural connection which connected Elliot’s conscious mind with the part of his brain that controled the emotional faculty (the amigdala) was severed He was left only with his conscious mind to make decisions So, for every decision, his brain went into overdrive… he didn’t have the luxury of consulting his emotional brain to make the intuitive decision In other words, it’s ultimately our emotional brain that makes decisions.. Including decisions to give
- Interestingly, we can feel emotions and physical reactions simply by reading a story (“The Storytelling Animal” by Jonathan Gottschall) Brains on fiction “catch” the emotions enacted on the page or screen. When we watch Clint Eastwood get mad on film, our brains look angry too; when the scene is sad, our brains also look sad. Research shows that whether we are watching a passionate kiss on television, or receiving a passionate kiss ourselves, our brains react the same way… we live the story And, in our fundraising, don’t we want to make people feel (after all, giving decisions are often made on an emotional, not logical, level) Drawing on the latest research in neuroscience, psychology, and evolutionary biology, Gottschall tells us what it means to be a storytelling animal. Did you know that the more absorbed you are in a story, the more it changes your behavior? That all children act out the same kinds of stories, whether they grow up in a slum or a suburb? That people who read more fiction are more empathetic? We all have a set of left hemisphere brain circuits that force story structure onto the chaos of our lives. When these circuits run amok we get schizophrenia, wild conspiracy theories and, sometimes, immortal works of poetry and fiction.
- The more vivid the story – through narrative or through imagery – the more emotionally arousing. And emotions are what triggers the impetus to help. The more surprising finding is that showing statistics can actually blunt this emotional response by causing people to think in a more calculative, albeit uncaring, manner. Another important emotion is sympathy which is a function of changes, not states. This is why we respond more emotionally upon learning that someone has lost their home than upon learning that someone is homeless. This might help explain why certain conditions trigger greater sympathy than others. A natural disaster or war causes losses in others’ welfare, whereas chronic conditions such as ongoing famine do not. For non-profit fundraising, it is important to frame situations in terms of changes or losses, not states.
- One of which suggested numerous job vacancies, while the other suggested that very few were available. The study found that subjects who were presented with the advertisement that suggested limited positions available viewed the company as being a better one to work for than the one that implied many job positions were available. Subjects also felt that the advertisement that suggested limited vacancies translated to higher wages. In short, subjects placed a positive, higher value on the company that suggested that there were scarce job vacancies available.[3]
- The more we’re exposed to something, the more we like it. The research: Robert Zajonc showed Chinese characters to non-Chinese-speaking participants. He showed each character 1 to 25 times, asking participants to guess the meaning of the characters. The more often a participant saw a character, the more positive meaning they gave. This theory has a quick effect, too. Researchers Kunst and Williams showed their study participants a picture of an octagon for only one millisecond. Later on, though the participants could not explicitly remember seeing an octagon, they showed an increased affinity for the shape. Marketing takeaway: Don’t be afraid to repeat your stories.
- “I’ll match you” – If I give, they give Looking at the idea of matching gifts through the eyes of behavioural science, we can see that its success has to do with reciprocity and commitment effects. It is motivating if we know that someone else has pledged to match whatever we donate. However, it has often been thought that the higher the ‘matched’ donation, the more effective it is at getting people to donate. For example, when a $100 donation is matched by a $200 or even $300 sum from the charity itself (a 2:1 or 3:1 ratio, rather than a 1:1 ratio). Behavioural economists Dean Karlan and John List, decided to test this rule of thumb in a set of field experiments they found that although matching did have an impact on both response rate and amount donated, larger matching ratios had no additional impact. For 1:1 ratios, the probability that an individual might donate increased by 22% and the amount donated rose by 19%, but 2:1 or 3:1 had no further effect.6 So, using matching gifts to incentivise potential donors is a useful tool, but there is no need to go overboard.
- You see this principle of persuasion in action all the time. Everyone slows down and looks when an accident happens. People gather around when they see others gathered around looking at something. You start clapping because everyone else is clapping. When you see something online that has a thousand likes or hundreds of thousands of views you're much more likely to share it because everyone else has already done it. People will do things that they see other people doing.
- Testimonials from donors show your target audience that people who are similar to them are supporters. Giving clubs, bandwagon effect of major efforts. Telling the success story. Once you get some critical mass going, use fundraising tickers. Show how many people are giving, in real time. Count your community: Show how many people have taken action to create a sense of a growing community of like-minded people. In your call to action, choose wording that demonstrates that others are already participating, e.g. "join millions of other generous Americans" or "hundreds of other concerned members in your community".
- People respect authority. They want to follow the lead of real experts. Business titles, impressive clothing, and even driving an expensive, high-performing automobile are proven factors in lending credibility to any individual. Giving the appearance of authority actually increases the likelihood that others will comply with requests – even if their authority is illegitimate. When people are uncertain, they look outside themselves for information to guide their decisions. Given the incredible influence of authority figures, it would be wise to incorporate testimonials from legitimate, recognized authorities to help persuade prospects to respond or make purchases.
- One of the first people to actually test this was a fellow named Stanley Milgram Controversy surrounded Milgram for much of his professional life as a result of a series of experiments on obedience to authority which he conducted at Yale University in 1961-1962. He found, surprisingly, that 65% of his subjects, ordinary residents of New Haven, were willing to give apparently harmful electric shocks--up to 450 volts--to a pitifully protesting victim, simply because a scientific authority commanded them to, and in spite of the fact that the victim did not do anything to deserve such punishment. The victim was, in reality, a good actor who did not actually receive shocks, and this fact was revealed to the subjects at the end of the experiment. The results of the experiment surpassed all estimates of the percentage of people who would be willing to administer the increasing dosage of shocks even though their subjects were begging to have the experiment stopped. Those who administered the shock found it difficult to disobey the instructions of the lab-coated researcher. In fact, many subjects protested that the shocks should end but still carried out the researcher's orders. So far, these have all been dramatic examples of obedience to authority. Most of the time, however, "Information from a recognized authority can provide us a valuable shortcut for deciding how to act in a situation Celebrity endorsements, research and partnerships are all ways to use authoritative figures to build trust, confidence and respect in your organization. Use quotes, pictures, videos, signatures, etc. from authority figures that support the work you do in upcoming fundraising appeals. If you use email as a way to solicit gifts, try making your next email come from the person who has the known name. Essentially, find ways to have authoritative figures tell your community of supporters how great the work you're doing is.
- You see that the wine list includes a $465 bottle of wine, so seeing the $149 and $125 bottles listed below it seem like an incredible steal. You have to ask yourself if that is really the case. You probably would have been just as happy with the $90 bottle, but since you came into the situation without a clear idea of how much to spend, you’re likely to fall victim to the anchor price of $465. Restaurants understand this effect very well, and will often only keep one bottle of the expensive wine on the premise. It’s only there to sell the “mid-priced” wine, as no one’s really going to order it.
- In another, disturbing, experiment reported by Kahneman, judges with at least 15 years experience reviewed a description of a shoplifter. Then they were asked to specify a sentence. But just before deciding they were asked to roll a pair of dice. Judges who rolled a 9 specified a sentence of 8 months; those who rolled a 3 said they would sentence her to 5 months–an anchoring effect of more than 50% - See more at: https://fivemaples.com/blog/why-anchoring-improves-your-average-donation/#sthash.xTLa9Jxm.dpuf
- Exploratorium in San Francisco, participants were told about environmental damage and asked about their willingness to make an annual contribution to save 50,000 offshore seabirds from oil spills. Some of the visitors were first asked an anchoring question: “Would you be willing to pay $5….”? Some were asked “Would you willing to pay $400…?” Those who were not given an anchor were willing to pay $64 on average. When the anchor amount was $5, the average contribution was $20. When the anchor was $400, the average contribution was $143 -
- The photo: I’d have a very different reaction if the child was smiling, or crying, or malnourished …
- Asking for a small donation can often lead to a small donation, and a correspondingly low level of funding raised. Yet asking for larger donations can also turn people off Another strategy for raising donation amounts uses the behavioural economic concept of anchors. When making a choice, we are often affected by the context in which we make that choice and the other options available. We anchor to extremes and tend to pick the middle option as a compromise – a phenomenon called ‘Extremeness Aversion’. For example, Oxfam present three pre-set options for people who want to make a one-off donation online. £100 probably seems a bit high for the average person, even for a one-off donation, but £25 feels quite low So donors are subtly directed to opt for the middle option of £50 They’re also subtly directed by the fact the “donate now” button, in bright orange, is right below the box