Show Me The Premium

July 15, 2006       Marla Nobles      

St. Joseph’s Indian School doesn’t mail potential donors just one premium, it mails them multiple enticements. Through its donor involvement program, World Vision mails current donors a tangible reminder of the needs of those the organization serves. And by offering lifestyle premiums on the back-end, the National Wildlife Federation not only increased perceived value, it stumbled upon a new branding opportunity.

Aside from the list selection, the argument holds that nothing will have a greater influence on the success of an organization’s direct mail program than the offer. So, in an attempt to capitalize on the popularity of the premium, an increasing number of nonprofits are putting a unique spin on this mainstay of direct response fundraising.

Premium addiction According to a monthly survey completed by May Development Services, a division of direct marketing services firm Direct Media, Inc. (DMI), there is an even split between those organizations that send appeals containing a premium, and those that send a straight appeal. “It’s sort of remained unchanged over the past couple of years,” said Larry May, CEO of the Greenwich, Conn.-headquartered DMI.

But according to May, for those organizations using premiums, the landscape has not remained unchanged. “There’s more and more expensive premiums being mailed,” said May. “Premiums are a way of getting the public’s attention and engaging the donor. To get donors to slow down and pay attention and give a gift to support the charity, the perceived value (of the premium) has to be great.” And often, that means the cost goes up.

At the National Wildlife Federation (NWF), a philosophical concern has arisen. “We worry about premium addiction,” said Georgina Price, senior analyst, membership, at the Reston, Va.-based organization. Especially amongst the tenured donors, “they seemed to want more and more and more,” she said.

According to Price, NWF was one of the first organizations to offer front-end premiums, and continues to do so via its 12 mailings per year. During 2000, NWF began including a back-end on renewal in its first-year acquisition mailings, usually a plush toy or key chain. Four years later, the organization tested a different sort of front- and back-end premium – the lifestyle premium.

A fleece blanket premium, said Price, was tested against the polar bear plush toy control. “It was an item that donors could use in their everyday lives,” said Price, of the fleece. According to Price, during a 2004 test run on acquisition mail, the fleece performed exceptionally well, with response rates experiencing a 49 percent lift, compared to the 14 percent lift with the polar bear plush. Average gift with the fleece increased by 11 percent, while the cost to acquire donors decreased by 61 percent. The plush toy didn’t come close on either.

During test runs on renewal with the same donors, Price said the results dropped off when donors acquired with a fleece were offered upon renewal the plush toy, a premium with less perceived value. Those renewed with a tan fleece blanket performed slightly better, with response rates increasing by nearly 17 percent, average gift up by 6 percent, and net revenue up by 27 percent.  A second test was completed the following year, with the fleece lifestyle premium again outperforming the plush toy.

“Sort of a side and unexpected benefit of using the fleece was the branding for the organization,” said Price, who said the NWF logo appears on the blanket. To offset the costs of the more expensive lifestyle premium, Price said NWF acquires donors with less costly premiums (e.g. its membership publication, postcards and emails) and by using non-premium-based appeals.

“We can’t make the premium disappear,” said Price. “We can only keep testing and do our best to stay ahead of the game.” While the search is underway for “that great mission package,” for now, she added, “give the people what they want.” Lifestyle premiums are definitely a newer trend, said Jill Querceto, vice president of sales and marketing at the Rumford, R.I.-based premium vendor Capitol Design. Querceto listed fleece blankets, pet accessories (e.g., dog tags) and gardening tools as some of the more popular back-ends, but nixed umbrellas. “Umbrellas are too expensive, and you can’t get a good enough umbrella for what the nonprofit wants to spend,” said Querceto.

According to Querceto, The Nature Conservancy uses a variety of lifestyle premiums, including a garden bag, baseball caps and fleece blankets. The National Audubon Society uses a fleece blanket. CARE recently rolled out female-centric lifestyle premiums, a pashmina scarf and a button compact mirror.  According to Merkle:Domain, the direct marketing agency working with CARE, test results on acquisition for the back-end scarf and front-end mirror have yet to come in.

It’s like American Idol A study completed by New York-based direct response firm ParadyszMatera found that 25 percent of all unique acquisition mailings during the past three years included name labels. Organizations as varied as St. Jude Children’s Research Hospital, The Humane Society of the United States and The Anti-Defamation League consider them a staple of direct mail acquisition packages.

“One would think that America would get enough of name labels, but they just don’t,” said May. “It’s like American Idol.”

Name labels “had fallen off the radar for a while,” said Capital Design’s Querceto. “But they’re back because of the innovative printing out there, and there’s better quality control on the personalization, so you’re not screwing up people’s names.” St. Jude Children’s Research Hospital began testing premiums in 2001, first with special occasion stickers, said Emily J. Farrell, manager of the acquisition programs at St. Jude and its fundraising arm, the American Lebanese Syrian Associated Charities. According to Farrell, although the stickers exhibited favorable results, during 2003, results of tests on personalized name labels proved even more favorable. The labels lifted response rates 87 percent more than the stickers, with an average gift increase of 2 percent.

Farrell attributed much of the success of the labels to the artwork. “It’s an emotional tie back to our kids,” said Farrell, who said the labels are printed with artwork created by the hospital’s young patients.

Farrell said St. Jude is constantly testing fresh creative and premiums, like notepads and note cards, with the stipulation that each has to effectively beat the control package in terms of response rate, average gift, cost to raise a dollar, and long-term value. The name labels, said Farrell, continue to be the clear winner. In increasing numbers, however, nonprofits are seeking new ways to utilize this traditional premium, particularly for front-end acquisition packages.

An interesting twist has been to include multiple premiums in a single package. This “bundling” approach, said Amy Koop, account director at ParadyszMatera, does two things: it works to increase the perceived value of a mail piece, which is reflective of the trend toward more expensive premiums; and in some cases, it allows organizations to test safely into a new creative or premium by keeping a key element (the name labels) of the control package.

Since 2005, St. Joseph’s Indian School has found increasing success using the “bundling” approach with its front-end acquisition mailings, according to Kory Christianson, CFRE, executive director of development at the Chamberlain, S.D.-based school.

The Holiday Box, consisting of Christmas cards, name labels and other holiday-themed trinkets, is mailed at the end of September to three main donor lists: acquisition, lapsed donors and house file donors. During FY2005, the box tested well and was rolled out to more than 1 million potential donors. The over-sized Dream Catcher package, which includes labels, a notepad and a key chain with a dream catcher design, also tested well with the same three applications.

Preparing for the FY2007 push, a test mailing of the Holiday Box to two million on acquisition brought a 7 percent response. This September, the school will mail to 2.7 million possible donors. Christianson estimated a 6 percent response. The school will mail the Dream Catcher, which in a test mailing to 5 million achieved a 3.8 percent response in acquisition, to 6 million possible donors.

He declined to provide the direct response contributions for FY’05 and FY’06, but said the school surpassed its goals for both fiscal years (ending June 30). According to Christianson, the school focuses largely on front-end premiums in an effort to grow its donor file. “Our average annual growth of our active donor file since 1996 has been about 12 percent,” he said, an increase from approximately 336,000 to approximately 747,000 active, 0-12 month donors.

Regarding back-end premiums, said Christianson, “It’s hit and miss. And, it’s usually miss when we do a poor job of selecting and promoting the (back-end) premium.” The cost of fulfillment for a back-end is also generally pricier, added Christianson. One back-end premium, a snow globe containing an image of the school’s chapel, proved too expensive at $10 to fulfill with a $100 back-end ask. “The other thing we did poorly was we put it in our Christmas mailing, and it wasn’t very strategic,” added Christianson. “We were sending these things to people who were probably going to end up giving $100 anyway. So we weren’t increasing average gift; we were just adding cost.”

Guilty until proven charitable With premium-based programs, attrition is a constant concern, and more so these days. “An advantage is that you grow your donor file quickly, but the downside is you create a lot of one-time gifts and lapsed donors,” said Christianson, who said he attributed the high attrition to guilt. “The person receives the item and might feel a little bit guilty, so they’ll send you $5.  There’s a lot of that.”

On the other hand, added Christianson, if you have a program in place to deal with attrition, “you’re definitely growing your file faster and you’ll have more donors available for planned giving, wills and bequests, and things like that.” There is a guilt factor for the low dollar givers, said Tom Harrison, president and CEO of the direct response fundraising agency Russ Reid, in Pasadena, Calif. “In general, these donors have a low lifetime value (LTV).”

Conversely, there are many charities that rely heavily on the low-dollar donor, and “probably have a million donors on their file who give under $10,” said Harrison. “But a lot of them give under $10 every time they’re asked.”

According to May, inducing guilt isn’t necessarily a bad thing. “Guilt is absolutely one of the major motivations for all charities. So anything you can do to get (donors) into that frame of mind is probably a good thing.”

Still, the question remains: How valuable is a donor to a charity if the person is giving a small amount because of the premium? And in some cases, is this merely a product purchase?

Mission marketing According to Harrison, charities must decide when it’s appropriate to use a premium. “I think the first question you need to ask is if you can do it without a premium,” said Harrison. If the answer is that an organization cannot successfully run its direct mail program without a premium, Harrison advised testing both mission-related and non-mission-related premiums.

One organization that seems to have the mission-related premium down pat is World Vision in Seattle. Since the late 1990s, the organization had been using seed packets as part of its donor involvement — or bounce-back — program, according to Atul Tandon, senior vice president for donor engagement, but recently made some adjustments.  

According to Tandon, the new donor involvement program involves sending the seed packets to donors and having them keep the premium — as opposed to sending it back along with a donation such as a regular bounce-back — as a reminder of the people the organization serves. “Our initial findings are that donors appreciate this very tangible and visual reminder of World Vision’s agricultural programs,” explained Tandon, of the seed packets. “Moreover, we have found that it is more efficient and economical to purchase the seeds in the nations where we work.”

Having abandoned the majority of its front-end premiums “because the long-term values are low,”  Tandon said that World Vision continues to focus largely on bounce-backs. During the past three years, the organization has run a Bible bounce-back, during which 300,000 bibles were delivered to children in 22 countries where the organization works. Each child sponsor was offered a bookplate sticker to sign and return, along with a $10 gift ask to cover the cost of the bible and shipping. The bounce-back, said Tandon, generated a 30 percent return, a significant response.

“The most staggering results I’ve seen are with bounce-backs,” said Harrison, who said response rates with this approach have been known to hit 80 percent. Covenant House has an expansive premiums program, utilizing a variety of front-ends on acquisition and renewal. “We started with name labels, but we’ve found that in acquisition only the 3-D premiums, the pins and cross and that sort of thing, that’s what’s working for us,” said Joan H. Smyth Dengler, vice president of direct response at Covenant House in New York City.

Sticking with “the normal things, nothing out of the box,” during 2000 Covenant House began testing three-dimensional premiums that, by imprinting on them images of a dove or an angel, were loosely tied to the charity’s mission. At 45 cents in the mail and with volume pricing, the cross necklace premium was inexpensive and, after it was rolled out during 2002, proved most popular. Across different segments, said Dengler, it achieved a response between five and 15 percent on renewal, and around 2 percent on acquisition. “Our total mission-based packages get 0.6 percent, so the 2 percent is phenomenal,” she added.

But that 2 percent was down from the 3 percent the cross received during the test phase. “People get tired,” said Dengler. “People get disenchanted with all this stuff.” The charity is considering a miniature canvas painting as a front-end, and this month will begin testing bounce-backs, or what Dengler described as the next big thing. Not every organization has a mission it can readily promote through a premium. As the backdrop for one of the most decisive battles of the American Civil War, Winchester, Va., with its historic sites and commemorative museums, has remained a hub for Civil War enthusiasts. During 1996, a local residency academy for emotionally disturbed boys capitalized on this and launched a back-end direct mail campaign, offering its donors the opportunity to purchase limited edition ornaments, created by renowned Civil War artist Mort Kunstler.

“It started out as a small project within the local Winchester-Frederick County community, and we just expanded it from there,” said Troy Newbraugh, CFRE, director of development at Timber Ridge School. Entering into year 11 of offering the limited edition ornaments, the school has raised in clear profit $307,000, and grown its donor file by 1,500 names, said Newbraugh.

The Civil War niche has proven key for the school. The ornaments are mailed to 34 states, the United Kingdom and Canada, and are available in 55 stores in eight states, as well as online via the school’s Web site and Kunstler’s. They’re advertised in a national Civil War magazine, courtesy of the publication, and are even being sold in secondary markets, some going for more than $500.

For its part, the school mails introductory letters to its house file with details of the ornaments, along with a gift ask. “It is an outright sale — $25 for the ornament, $15 of that tax-deductible – but we are seeing people who give anywhere from an extra $10 to an extra $250,” said Newbraugh.

When the ornaments sell big in other markets, the school makes sure to let donors know. “Probably a dozen times people call and ask which ones are going to sell out fastest, and they want to buy that one,” he added. The proceeds and donations raised have gone toward two new buildings, including one that was named for Kunstler in 2004.

The latest ornament, a depiction of Raleigh, will further expand the school’s market into North Carolina. The ornaments — five of which have already sold out — are produced by ChemArt, a Lincoln, R.I.-based company that develops collectibles. While Harrison advised that an organizations should work hard at trying to find an offer that’s mission-related, “if you’ve tried everything else and this is the thing that works the best, I’d say use it. All that matters is the return on investment (ROI).”

Social compliance According to Querceto, a hot-button issue these days for many nonprofits is whether their premium vendors are operating with a conscience. “Charities want to know about the social conscience of where these items are being produced,” said Querceto, who recently made a trip to Capital Design’s factories in China on a social compliance visit. More often, charities are requiring their premium vendors provide documentation that fair labor is being used, and that the environment is being protected. “A lot more accountability is being asked for.”  DRFE