A Marketing Strategy Charities Use That Would Fail in the Business World
Have you ever received a charitable solicitation like the one above?
Many charities are in the business of offering assistance to those in need, i.e. people who are poor or starving or otherwise in need of financial assistance of some sort. Charities should not be in the business of offering financial assistance to those who don’t need it and who might even literally throw that money away.
This is at least the second time I have received a charitable bulk mailing using real money to entice people to make donations. This has to be the worst marketing strategy I have ever heard of.
When have you ever received free money in the mail from a legitimate business?
It never happens.
Sure, you might get a coupon toward a future purchase at the issuing business or maybe a free gift after you take a test drive or attend a seminar but real businesses don’t give out cash. It just doesn’t make any sense to do so. Your potential customer has no obligation to use that money to benefit your business and the quantifiable increase in cost in that mailing is not insignificant. Assume, for example, the mailer of the above charitable solicitation sent out 100,000 of such letters, spending $5,000 to include the nickels. What could a charity do with an extra $5,000? At a minimum it could pay the electric bill for the administrative office or buy a year’s worth of office supplies. How does it make you feel to know that a charity may literally be putting thousands of dollars into the trash?
Why do charities do this? I suspect the answer is that there are some favorable statistics showing that people who receive cash in the mail feel guilty that the charity sent this to them and feel obligated to make a donation. Or, maybe people are more likely to open the envelope to get the money out and will be moved to donate by whatever marketing information they stumble across in the process.
What would make a charity so desperate for donors that they would mail actual cash to them?
A Taxing Problem
One factor in this answer may be U.S. tax law. Under the tax law, there are really two distinct types of charities: public charities and private charities. Public charities are all the big names we have all heard of, like UNICEF, the Red Cross, most homeless shelters, soup kitchens, etc. Private charities are generally those operated by corporations, wealthy individuals or celebrities. The tax law distinguishes between these two types of charities by imposing a small tax on the assets of private charities and limiting the deductibility of donations to private charities. The theory seems to be that a private charity is a little more suspect than a public charity as it could be used as a tax shelter or to further the private business interests of its creator. Public charities, in contrast, are less suspect as they don’t tend to have one large donor and instead rely on numerous donations from a broad range of the general public.
The theory sounds pretty good but the reality is that most public charities do tend to have one or a few very large donors that support the bulk of their operations. There is nothing wrong with that and it is probably more efficient for the charity to focus on securing a few very large donations than numerous small donations.
But public charities that accept large donations have to watch the public/private charity laws very carefully. There are exceptions to the laws that say essentially that it is OK for a public charity to take a large donation from one individual or corporation so long as there are a relatively large number of small donations that help ensure the charity is still serving the public good. So, for example, a corporation or wealthy donor could give $1 million to a charity and 10,000 individual donors could give $1 each and voila the charity could potentially be considered publicly supported, even though the bulk of the money really comes from the corporation or wealthy donor.
So long as the cost of fundraising is less than the potential tax that would be imposed by converting to private status, charities will continue these types of unusual bulk mail solicitations. (And yes, some charities don’t have big donors and really do need all those small donors to meet their funding needs.)
Whenever I see one of these “free money” solicitations from a charity, I think of the tax laws. If the charity were marketing directly to me, rather than mailing me cash, they would send me a quick postcard or e-mail saying something along the lines of
Dear Ms. Briggs,
“Good news! Thanks to a generous donation from ____, we can afford to fully fund our ____ priorities. But we need your help to preserve our tax status. If you could send a donation of $1 or more, you will help save us an estimated $____ in taxes, which we can reinvest in our charitable work. You can view a presentation on how we plan to allocate this money on our website at _____. Thanks!”
I would note what a well-managed charity it was and send in my donation. But I know that most people might not see things this way and this pitch mentioning the tax code and the fact that the charity already has a large donation in hand might engender feelings of hostility rather than charitable impulses. Instead, we all get the same vague requests for “help” year after year.
What is your reaction to charities mailing money? What is the most unusual marketing pitch you have seen from a charity? What type of pitch is most effective for you? Please share in the comments.
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