Donor Giving Increases With Incentives That Appeal to Sense of Social Status

PITTSBURGH, March 16, 2009 — When it comes to donor giving, what triggers big spending are benefits that convey social status and offer visibility through opportunities to connect with other affluent and influential people, according to new research from the Tepper School of Business at Carnegie Mellon University.

Exclusive or high-profile benefits, such as invitations to dinner parties and other special events, are by far the strongest incentives for donors to support charities, above and beyond the so-called "warm glow" of giving. The study analyzed donor and related demographic data for 10 of Pittsburgh's largest cultural and environmental organizations, unearthing compelling evidence that appealing to donors' sense of "status" is essential for effective fundraising.

"Individuals with high levels of wealth or who tend to support political candidates -- people who may have greater incentive to seek occasions for social networking -- place a much higher value on the private benefits associated with their giving levels," said Holger Sieg, professor of economics at the Tepper School and co-author of the study. "These individuals are key to the sustainability of nonprofit organizations, so it is more important than ever to appeal to what motivates such donors to give."

For the study, Sieg and co-author Jipeng Zhang of the University of Pittsburgh compiled a list of donors from 2004-2005 for 10 prominent nonprofits in the Pittsburgh metropolitan area, including the Ballet Theater, Children's Museum, City Theater, Pittsburgh Opera, Phipps Conservatory, Public Theater, Pittsburgh Symphony, Western Pennsylvania Conservancy, and Zoo and PPG Aquarium. The data was analyzed using a methodology never before employed in philanthropy research: one that classified individual tiers of giving as "prices" associated with different bundles of benefits.

Exclusive Benefits Have Big Impact
Sieg and Zhang also simulated the potential effects if the organizations were to change their donor benefit strategies. For example, adding one dinner party for donors in the highest tier of giving for the Carnegie Museum, the largest organization in the data sample, would raise an additional $197,425 annually. But the Children's Museum, a much smaller organization with a lower profile, would gain only about $11,019 from an additional donor event. According to the researchers, this variation underscores the power of a charity's status in the community as a central influencer of donor contributions.

Generally, the study's simulations found that charities already relying heavily on private benefits to attract donors would see much lower giving levels if these benefits were eliminated. Further, organizations not currently employing such benefits for fundraising might actually realize a slight increase in the number of donors and overall contribution levels if "competing" charities that use private benefits were to eliminate them. In addition, the nearly 8 percent of individuals in the data sample who supported multiple charities would decline significantly if high-value private benefits were eliminated.

Sieg believes that other regions would yield similar findings by identifying the same fundraising potential from exclusive benefits. "Clearly, certain charities could yield big returns from ramping up the exclusivity of the special benefits they offer to high-potential donors," Sieg said. "This is valuable information to have, especially in the midst of the fundraising challenges faced by nonprofit organizations in a recession."

The study, titled "The Joys of Giving and Receiving," was funded by the National Science Foundation, and is available for download at http://www.andrew.cmu.edu/user/holgers/papers/sz_11_08.pdf.

About the Tepper School of Business: Founded in 1949, the Tepper School of Business at Carnegie Mellon (www.tepper.cmu.edu) is a pioneer in the field of management science and analytical decision-making. The school's notable contributions to the intellectual community include six Nobel laureates, a Nobel Prize record that is unsurpassed by any business school worldwide. It is also among the schools with the highest rate of academic citations in the fields of finance, operations research, organizational behavior and production/operations. The academic offerings of the Tepper School include undergraduate studies in business and economics, graduate studies in business administration and financial engineering, and doctoral studies.

SOURCE Tepper School of Business at Carnegie Mellon