Focus On: Premiums: Here Donor, Donor

Premiums can take many forms, from traditional address labels and calendars to the more unusual seed packet or even piggy bank. What they all have in common is the ability to get the mail opened, generate higher response rates (than non-premium efforts), and drive us all crazy with worries about their up-front cost and the value/renewability of the donors they acquire.

We love to hate them, but the fact is premiums comprise a majority of nonprofit acquisition mail, and their usage remains steady. Subsequently, for many nonprofits today, there is increased competitive pressure to stand out in the mailbox. And while many have come to rely on the response rates that premium packages bring, the days of indiscriminately mailing address labels are over. We need to become smarter about what and when we mail, and to whom.

For the purposes of this article, we’ll define a premium as an item of perceived value that is included in a mail piece (front-end) or promised as a gift, contingent upon a donation (back-end).

As part of its ongoing research, New York-based ParadyszMatera, an analytics and media-services provider, tracks 2,200 unique nonprofit fundraising promotions each year. That research shows that premium use within the nonprofit space has remained steady for the past three years, with between 55 percent and 60 percent of the nonprofit mail studied including some form of premium. Front-end and back-end premiums are equally popular, each accounting for roughly 35 percent of total nonprofit mail volume.

One interesting point to note is that there is significant variation in premium use among the subcategories of nonprofit mailers. For instance, premium use by the nature/wildlife category has hovered near 95 percent (of unique campaigns) for the past three years. By comparison, premiums from humanitarian mailers have been tracked in only one-third of in-category mail pieces. Front-end premiums are most popular with Catholic mailers, who were tracked in the first half of 2005 to have included them with 66 percent of their mail volume. The disease/health and military/law categories saw about 40 percent of their mail volumes using up-front premiums.

Creative trends
Address labels traditionally have been the workhorses of the incentive world (25 percent of all unique acquisition campaigns mailed over the past three years included them), but we’re seeing some interesting creative break-outs by nonprofits. One tactic noted increasingly in acquisition over the past 12 months is “bundling” (including multiple premiums in one package). Typically, an address label sheet is one of the elements, along with additional items such as notepads, bookmarks and/or greeting cards. Nonprofits use this strategy to increase the perceived value of a mail piece, and in some cases to test safely into a new creative/premium by keeping a key element of the control. We’re also seeing back-end premiums bundled with front-end, a strategy employed to garner the higher response rates seen with up-front premiums while maintaining acceptable average gift levels (with the minimum ask usually required for a back-end premium).

Back-end premiums have typically included merchandise items such as backpacks, blankets and hats. Environmental and humanitarian organizations frequently also have used mission-related newsletters as back-end premiums. We’re seeing increased usage of newsletter premiums by those categories, as well as a new usage by the general health/charity category nonprofits.

Regardless of the specific premium used, we’re also seeing that many mailers are rotating their creative design more quickly than ever before. Where a typical creative shelf-life used to be two-plus years, art is now turning over as fast as every six to nine months for some of the major nonprofit mailers. Again, the concepts of competition and list-universe saturation create an increased need to keep mail pieces fresh.

The big question
So, what’s the next premium that will replace labels and breathe some life back into lagging response rates? It’ll be difficult to replace the address label, with its highly consumable nature, popularity among the core nonprofit demographic and relatively low cost. In an effort to stand out in the cluttered mailbox, some nonprofits are turning to some out-of-the-box testing, including rubber bracelets and bumper stickers as well as unique, high-affinity items ranging from dog tags to “worry dolls.” These items might be more likely to appeal to a slightly younger donor, the holy grail of today’s nonprofit acquisition programs. Merchandise premiums such as these, as well as jewelry, pens/pencils and prayer cards, have seen a slight increase over the past three years.

While not technically considered a premium in ParadyszMatera incentive studies, decals are an interesting offshoot of the premium world. In terms of performance metrics (response and average gift), they tend to behave more like non-premium packages. Traditionally the domain of humanitarian and certain health/charity mailers, decals have become more popular with advocacy and political groups within the past six months.

Premium performance
It’s evident that premium use is significant, but how are premiums performing for nonprofits? For the past two years, ParadyszMatera has conducted a quarterly acquisition-performance benchmarking study using compiled statistics from 21 of its nonprofit clients (collectively mailing more than 250 million pieces annually).

In general, while response has shown recent softness for most premium mailers (down cumulatively 6 percent from 2003 to 2004), average gift for this period has improved (by 3 percent). Note that we saw a similar trend
with non-premium mail in that response was soft, but average gift amounts increased.

At the end of the day, it truly becomes an issue of an ROI calculation, one that takes into account all factors of a package’s performance and cost. Most importantly, a careful consideration of a program’s goals at any given time is crucial to the analysis: When driving donor numbers is the key factor, a premium package almost always will achieve this goal faster than a non-premium package. If overall revenue is the key metric, we must calculate both the up-front and lifetime value of a donor acquired by a particular package in order to decide the appropriate strategy.

Optimize performance
The key to optimizing performance of premiums in the future will be a combination of these factors:

• Frequent and consistent testing into fresh, new creatives, including systematic package rotation;

• A deliberate match of incentives to particular sub-audiences; and

• The disciplined use of LTV information in a true donor ROI analysis.

The last point cannot be made too strongly. We are entering a new era in donor acquisition, one in which a complete ROI analysis must be done on every prospect group. Increased access to LTV information is shaping the argument over premium use. Organizations are developing an evaluation system that accounts for the LTV of donors acquired by premiums versus those by non-premiums (and other non-direct sources).

There are no rights or wrongs on premium use, but it’s a matter of defining priorities: Premiums are a valuable tool for getting donors to raise their hands to a relationship with your organization (i.e., raising response rates), but they do put a specific burden on the renewal program to retain those individuals. Key elements to monitor within the LTV equation are list source, list market and how donors are acquired onto the lists you’re using (premium vs. non-premium packages).

Although we’d all love to have prospects beating down our doors to donate, for the foreseeable future it’s likely that we will continue to need premiums as a foot in the door so that we can tell our organization’s story. The key is doing it appropriately and cost effectively, being well-informed about the acquisition landscape, and being fanatical about tracking the long-term value of donors acquired by any package/source.

Amy Koop is an account director at ParadyszMatera, a New York-based media brokerage services company specializing in direct mail, Internet marketing, and alternative and print media. She can be reached at akoop@paradyszmatera.com.