Many of our clients have suffered losses in membership, enrollment, or donors. The conclusion tends to be that these losses are caused by increased customer price sensitivity. As a result, many organizations de-cide that the answer is to cut costs, thereby enabling them to reduce the price to consumers. While evaluat-ing expenditures in order to run a tight ship is critical at any time, it tends to mask the proverbial 800-pound-gorilla in the room, which is the problem of poor levels of perceived quality.
What people are more sensitive about is making sure that, before they buy something, the quality justifies the price. This perspective would not suggest that price is unimportant and quality is key, but that the two must be linked. The tradeoff that institutions make be-tween cost and services defines the value participants see for each dollar spent or donated.
The reason we believe many organizations are suffering financially is because their customers consider their services to be mediocre, and are not willing to pay a premium for them during a time when frugality is the watch-word. In data we’ve collected across hundreds of non-profit organizations, there is no correlation between enroll-ment and price increases. We’ve studied data from many of our cli-ents and found that those whose perceived quality of services is measurably outstanding are not suffering the membership or enrollment drops experienced by those providing mediocre quality. Cutting costs can be a red herring, since it could create a vicious cycle in which it further reduces the capacity to provide ser-vices.
Universally, consumer willingness to pay for a service is a combination of financial ability, commitment to the mission, and perceived quality of the service. Often times, non-profit institutions are highly attentive to their customers’ financial ability and commitment, but fail to effectively monitor perceived quality, allowing it to drop to mediocre levels, which is ironic because this is the factor that institutions have the most control over.
Many studies have proven that the survey question “likelihood to recommend your institution to a friend” (known by the concept of a net promoter score) is the best question for predicting a customer’s like-lihood to stay or leave as well as the institution’s future growth or decline. Measuring Success, through its Peer Yardstick methodology, has developed tools to address this outcome and study its key drivers.
It is fascinating to observe the aggregate percent of promoters across the types of institutions and the de-cline in enrollment or membership. For those institutions where there are generally waiting lists, the percent of those surveyed rated their likelihood to recommend at 78%. Meanwhile we surveyed many who utilize private schools and other community organizations and found on average 48-54% likelihood to recommend scores for those groups. Anecdotally these organizations feel themselves struggling to maintain enroll-ment, and therefore the scores confirm that struggle. This underlines the point that we need to improve per-ceived quality first and foremost, and should cut costs only in areas data indicates do not significantly con-tribute to perceived quality.