As many of our clients suffer 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 decide that the answer is to cut costs, thereby enabling them to reduce the price to consumers. While reevaluating expenditures in order to run a tight ship is critical, it tends to mask the proverbial 800-pound-gorilla in the room, which is the problem of poor levels of perceived quality.
When deciding whether or not to purchase something, consumers are generally concerned that quality justifies the price. This perspective does not suggest that price is unimportant and that quality is key, but that the two are intrinsically linked. The tradeoff that institutions make between 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 customers consider the organization’s services to be mediocre. Through the data we’ve collected from hundreds of non-profit organizations, we have discovered no correlation between enrollment/membership and price increases. Rather, data shows that enrollment/membership responds to perceived quality—the amount of value a customer places on an organization’s goods or services. Price should be set so that they match the consumer’s perceived quality; if price exceeds perceived quality, organizations will lose customers. We’ve studied data from many of our clients and found that the organizations with outstanding perceived quality are not suffering the membership or enrollment drops experienced by those providing mediocre quality. Lowering prices by cutting costs can be a red herring, since it can quickly create a vicious cycle in which organization capacity is further-reduced, leading to even lower perceived quality.
Universally, consumer willingness to pay for a service is a combination of financial ability, commitment to mission, and perceived quality of the service. To use a metaphor from retail, if you go shopping for a new sweater, whether you buy the sweater and how much you will spend is a combination of your disposable income, need (is it 10 degrees in January and you forgot to pack a sweater in your suitcase?), and your perceived quality of the sweater (materials, style, and brand). Oftentimes, 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—even though it 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” (also known as “net promoter score”) is the best question for predicting a customer’s loyalty as well as an organization’s future growth or decline. Measuring Success, through its Peer Yardstick methodology, has developed tools that address this outcome and study its key drivers. It is fascinating to observe the aggregate percent of promoters across different organizations and compare their average declines in enrollment or membership. A portion of our clients come from the faith-based sector. Specifically within the Jewish community, we’ve collected data on donors’ willingness to recommend an organization for which they’ve donated between $1-10,000. Camps average 78%, Day Schools average 54%, Community Centers average 48%, and Federations average 29%. It should not be surprising to note that many Jewish camps have waiting lists, while schools and JCCs are working hard to keep enrollment stable, and many federations have been losing donors. Keep in mind that these scores represent averages across all institutions and that there are obviously individual institutions that scored much higher and lower. And naturally, the intensity of the experiences for each type of institution are significantly different. However, the data underlines the point that we need to improve perceived quality first and foremost, and should cut costs only in areas that data indicate do not significantly contribute to perceived quality.