Annual Giving and Segmentation

Dealing with Limits Limited Time, Limited Budget, Limited Human Capital By Christopher A. Clark

January 2015

Segmentation Strategy DefinedFundraising programs face the following challenges:

n Acquiring a base of donors, growing it, building a pipeline for future major gift prospects, and generating operating support that increases over time.

n Making mass solicitations feel personal.

n Repeating these steps annually, paying close attention to the institution’s fiscal year and tax year calendars.

n Accomplishing all this with a smaller budget and fewer people than you once had.

In order to accomplish these challenging tasks, fundraisers have shown ingenuity by using tools and techniques from sales and marketing. Around the holidays, some retailers shift from the best practices of personalization to mega sales where the goal is just to get people into the store. But those that are really good at their targeting and

segmenting put that practice into high gear. So let’s take a page from our friends doing wonderful marketing for the great retailers. Their success started with understanding their customer and segmentation.

Segmentation strategy is defined by businessdictionary.com as subdividing a market or population into segments with similar characteristics. They define five major groupings: (1) behavior, (2) benefit, (3) demographic, (4) geographic, and (5) psychographic. Behavior segmentation looks at differences in consumption, lifestyles, patterns of purchasing, using, and spending. Benefit, demographic, and geographic segmentation are what you expect based on their names. Psychographic segmentation is based on analysis and surveys of consumer lifestyles and responses to questions about activities and interests, and then is combined with demographic characteristics for a target segment.

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Applying Segmentation in FundraisingAccording to research done by the Center on Philanthropy and Civil Society at Stanford, people’s charitable support follows their own interests and preferences. While this may seem second nature, the take-away should be the value of understanding donors and prospects. What are their interests and preferences? In marketing, it’s called knowing your customer and listening to the voice of the customer.

A fundamental assumption, therefore, is that we know our prospects and include that information in our database. Segmentation relies on having good data. If your organization is lacking data, start collecting it and build the number of data points over time. For example, add tracker IDs to your e-solicitations so they can be entered with the gift; and thus providing insight into which channel and theme are most successful with certain target audiences. Or hold exit interviews with your graduating seniors so you know their favorite faculty or staff members. In healthcare, make sure you track referring doctors so you can better target your solicitations. These data points allow you to target your mailings right away.

Tracking your fundraising results, even if you are not segmenting, is an important step in the process. If you are not tracking results, here are some initial data points to follow:

n Timing of giving

n Channel preferences

n Single gifts versus installment

Groupon Strategy Groupon started in November 2008 with a single deal in about 20 markets. In about two years, it grew to 500 markets in 45 countries. Those initial deals were sent to 2 million subscribers. Two years later there were 115 million subscribers. There was no segmentation when it began. As Groupon grew, it implemented four segments: geographic, product type, life cycle, and personal data. New subscribers received 12 messages in 45 days for the company to learn their behavior. Groupon implemented rewards and recognition to retain their best customers.

Groupon sees its business as offering “great things to do.” In order to fulfill that task it had to identify the customers’ interests, location, and purchasing habits. Then it targeted those through segmentation.

Source: http://marketingland.com/best-practice-pros-groupon-manages-email-programs-108798

LYBUNT

GratefulPatient

CancerConnection

Target Audience

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Segmentation is the tool we can use to solicit our entire prospect base, making each household feel that we are speaking directly to them and no one else. We know that their decisions about giving are largely based on emotions toward our institution and our particular projects as well as their understanding about how their gifts will make a difference. Thanks to mail merges and desktop publishing, we can accomplish part of our objective of making each outreach to a prospect a personalized approach, yet still reach the masses.

We are nearly ready to launch into a solicitation mailing. However, before soliciting our constituents through a mass mailing, we need to first define success. As important as segmentation is, it is even more important to clearly define our objective and determine what a successful outcome will be. Our solicitation objective might be to acquire new donors, or retain our existing donors, or regain lapsed donors, or upgrade donors to new levels. All of these are judged differently, have different metrics, and serve different purposes.

Depending on the data points we have for our solicitable base, we can determine what our solicitation segmentation strategy can be. In the U.S., bigger is often thought of as better. However, more complex segmentation is not always better. If you have kept data for a few years on your solicitations, doing some analysis on the data could provide some clues to how many and what kind of segments you choose to use.

Retention rates are normally correlated with the amount an individual gives and their consistency of giving. Our work at BWF with college and university clients suggests that retention rates are typically higher than other organizations, often in the 60–70 percent range. We see that those donors who have developed a consistent pattern of giving of five or more years in a row generally renew at even higher rates, likely in the 80 percent range. Additionally, donors who give a leadership gift to institutions renew at a rate in an equal range to those consistent donors.

Three Consecutive

Years

Respondedto Email

E-solicitation Segment

Y

Respondedto Email

DecemberDonation

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Strategies for Implementing Segmentation into Your Program

More segments do not necessarily equate to a better strategy. Use what you need for your objective. If your focus is on acquisition, then you have no giving data to use. But you likely know something about your constituents’ biographical makeup. They are a grateful patient or a graduate of the last decade. That is enough. Use that single data point to develop a segment and e-solicitation. Those who do not open the email could get a paper mailing focused on the specific hospital or well-known faculty member.

Track the results. Donors move into your next grouping. Non-responders stay for the next acquisition attempt.

If you are attempting to reacquire lapsed donors, use the data points you likely have from their prior giving. Timing, amount, and designation of their last gifts are all data points that are helpful. Include the channel they gave through and any consistency of giving they had prior to lapsing. Consider sending a brochure-style mailing that has both case and images, telling the story of particular patient, program, or student that aligns with prior gift designations.

In Bentz Whaley Flessner’s experience, reactivation rates at colleges and universities average about 18%. However, the real story is your likelihood of reactivation over time. If they lapse just for one year, your rate of re-acquisition can be as good as 25%, but the longer they don’t give, the smaller the chance is you get them to join again. Once someone has lapsed for 6 or more years, the likelihood they will give again drops below acquisition levels.

Upgrades

Renewals

Lapsed Reaquired

Acquisition

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Renewing donors can be simple, but should not be assumed to be a slam dunk. Show you know them and were listening when they gave before. Align your solicitation with their gift anniversary months, solicit for the designation they previously gave to, and stay channel-specific. If they gave via the web to an e-solicitation, then use that again. Keep the solicitation relatively short, but consider providing an update about the area that their designated gifts support.

Upgrading donors is a step up from renewing them. Target those that have a few years of consistent giving. Make a case for why the increase is necessary, the impact it will have, and why now. Consider targeting demographics that are similar to those in your database that have already increased or are giving at your leadership level. Incorporate analytics to determine fit and targeted solicitation amount. Segment using multi-variable data collected and make sure the appeal feels highly personalized.

Testing, even small groups, can be effective in learning behavior. For example, identify a group of 50–100 donors who have given $100 for a minimum of three consecutive years. This works even better if you have a group that all gives in the same half of the fiscal year. Solicit them all for $250 for a designation prior to their anniversary gift date. Track your results to determine the success of that upgrade approach.

ConclusionIn the end, the personalization that happens through the mass customization of segmenting your mailings will increase your program’s productivity. Doing so requires more time to set up the segments and more tracking of the gifts that come back; however, retention and revenue generation should increase. Segmentation shows your constituents that you are listening to them and that you know them. They in turn, will support you and engage in the relationship because you care enough to listen.

Joshua M. BirkholzAnna N. BurgasonJan B. CadyChristopher A. ClarkMargaret Sughrue CarlsonJames P. DanielM. Bruce DreonBruce W. FlessnerThomas W. GrabauJamie L. HunteJudith M. JobbittMark W. JonesJudy Y. KirkKatrina A. KlaprothBond T. LammeyJenny S. LappegaardWilliam R. LoweryMark J. Marshall John S. McConnellJennifer A. McDonoughAli R. McLaneChelsey D. MegliMerrell A. MilanoMarisa E. OntkoDennis A. PrescottAlison E. RobertsAndrew C. SchultzWilliam D. TippieJustin J. Ware

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Christopher A. Clark is a senior associate at Bentz Whaley Flessner.

In this issue of Points of Practice, Bentz Whaley Flessner presents ideas on how to effectively use segmentation in your annual giving program, helping you counter limited time, budget, and human capital.

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INSIDE: Annual Giving Segmentation: Dealing with Limits

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