Consumer Motives for Charity Donations

1. Introduction

Consumer motives and behaviour into donating to charity in general is a topic that is known to have a lack of research, creating an issue of ambiguity for charitable organisations. Most research existing is based on cause related marketing, the cooperative alliances between charities and corporations to gain charity funding, yet little in depth research exists on the area of personal financing from consumers in the form of donations. With figures from 2001 showing that the top 25 UK companies gave £102 million to charity, with as much as £31 million per donation, it is evident that it is most probably the case that the percentage of charity financing does come from corporations, at least for the larger corporations with many strategic alliances in the sector (Smith J. , n.d.). Although this should not mean that other areas of financing should be overlooked; particularly in a society in which social responsibility is growing in importance. Furthermore, neglecting this area of financing could eventually change the entire focus and structure of charities, leaving the individual consumers out of the equation altogether. But of upmost importance is the fact that as stated by Patrick Cox, Chief Executive of the Small Charities Coalition, “cash donations are usually the primary source of fundraising income for small organisations”, suggesting that a failure to correctly understand consumer behaviour could lead to the diminishment of the small charity (Critchly, 2009). However, also considered within this research is the issue of consumer confidence in donating, whether consumer beliefs of misallocating financing, bureaucracy, and red tape is a significant factor in charity size preferences.

Therefore this report serves the purpose of researching consumer motives in personal individual charitable contributions, examining whether these motives differ by the size of the organisation; in this research size is defined by the focus of the charity, being local based, national based or international based, therefore focusing on where the funds are placed as opposed to the actual numerical size of the organisation. The hypothesis to be tested is that consumer behaviour indicators change according to the size of the organisation. However, this research will only be based on the donative non-profit unit of the charities, meaning that it will only investigate the significance upon individual consumer contributions, and not any other areas of financing such as corporation or other organisational or governmental funding. Additionally, this research will not take into account the contributions made in the form of legacies.

The study itself is based upon a model of charitable giving behaviour, which has been formed in consideration of other models of consumer behaviour, but also taking into account the information available in the field of charitable consumer behaviour. The model considers the areas of organisational inputs, psychological attachment, consumer confidence and experience alongside a selection of extrinsic determinants, namely consumer demographic factors. Quantitative research methods in the form of an online survey are adopted to test this model, in which 196 respondents are questioned.

It becomes apparent that this research project has a large scale in terms of aims and objectives and what it is trying to prove. This study can be considered to be a smaller version of the big picture, in the sense that in reality the study would be much larger scale, with many researchers on board to investigate the topic. A UK wide study is generally a large project in terms of the amount of research needed to be conducted, however given the resource limitations of this study, the results found will merely provide an insight into differences and trends, for researchers to base further studies upon. Regardless, this study is considered to be of upmost importance in adding valuable consumer behavioural research to the field, a field in which studies are in general very sparse.

2. Literature Review

A non-profit organisation is typically defined as one which has a “non-distribution constraint” (Hansmann, 1987, p. 28) , allowing firms to make surplus profits, however not to distribute financial resources to controllers of the organisation in the form of dividends and such, but to retain profits for other allocations. This idea is vital to the understanding of economic, financial and consumer dynamics of the sector. As Powell and Steinberg (2006) elucidate, the theories and models surrounding the economics of the non-profit sector create a great deal of confusion, since the basic ideas of profit maximisation do not apply, and it is assumed that any deviation from this ideal is considered market failure. It is difficult to believe that consumers, with their normally selfish economic motives, can have in reality such altruistic motives. However it is the case that these motives can be linked to fulfilling a consumer emotive need.

Whilst the non-distribution constraint serves as a definition, it is not necessarily true to reality, since in the non-profit sector operational costs amount and the issue of rising administrative and fundraising costs becomes apparent in today’s media. Administrative costs, whilst unavoidable, are certainly thought to be excessive in the industry, perhaps causing mistrust amongst consumers. It is thought that consumers expect the administration to charitable expenditure to be 20:80 (Kahler & Sargeant, 2002); however research by Harvey and McCrohan (1998, cited in Kahler & Sargeant, 2002) found that consumers are satisfied with a minimum of 60% of revenues reaching the final end cause, begging the question that if this is indeed the case, is consumer confidence in charity financing such an issue?   Either way, it is certainly the case that consumers are kept in the dark on the optimum level of relevant cost and efficiency margins. Escalating matters further, the body for regulating the UK charity sector, the Charity Commission, as “the sanctions for inefficient behaviour are not automatic” (Levaggi, 1995, p. 285).  Administrative costs compared to total expenditure appear to have a negative correlation to the size of the charity, meaning that the administrative costs are higher as a percentage when expenditures are less as can be seen in the figure below. This is perhaps not the common belief of consumers, with smaller charities being seen as less wasteful by consumers, proven by a survey initiated by Third Sector (Wiggins, 2010). Regardless of attempting to isolate consumers’ actual beliefs, attitudes and assumptions, research by NFP Synergy has confirmed that most individuals within the UK public do not have confidence in charitable organisations, with confidence dropping by 9% to only 41% (Hummerston, 2008).

The involvement of ‘for profit’ companies with ‘non-profit’ organisations is normally in the form of cause related marketing, which according to Varadarajan and Menon is “the process of formulating and implementing marketing activities that are characterised by an offer from the firm to contribute a specific amount to a designated cause when customers engage in revenue providing exchanges that satisfy organisational and individual objectives” (Varadarajan & Menon, 1988, p. 60). This form of voluntary contribution is more likely to occur with the larger charities as opposed to the smaller ones; furthermore it must be considered that the willingness to contribute and the motivations backing the decision is very much different to that of a general consumer, since although consumers are led to believe that companies engage in Corporate Social Responsibility for good causes, of course the bottom line concern is profit maximisation.

According to Hansmann (1980), the non-profit sector can be separated into two different forms of organisations according to their dynamics; donative and commercial non-profits, and it is the non-distribution constraint which creates confidence that the money is being resourcefully and properly allocated. However since the service is not visually seen to be conducted by the consumer who donates, there could be issues with contract failure, or at least perceived contract failure; this is thought to be less of an issue with larger organisations as the sheer governance structure secures confidence (Wiliamson, 1979). Yet in any case there exists a corporation charter and legal framework to provide assurance. Although it must be questioned that due to the non-distribution constraint in larger companies whilst profits are not dispersed among management, there would be a much broader structure of employees, and hence remuneration and bureaucratic structure. Additionally, this ambiguity of the constitute of financing appears to be a common cause for concern amongst consumers, with research showing that 51% of the UK public would give more if they knew where the money is spent (Wiggins, 2009).

Existing research into the consumer behaviour of charity linked products tends to be research based on the field of cause related marketing, rather than the individual end consumer’s behavioural characteristics into products that are not linked with ‘for profit’ companies, such as donations and organisation branded purchases. Present research solely into non-profit organisations tends to be based on commercial non-profits such as nursing, hospital care and education institutions, where results and service can clearly be seen and evidently proved. Thus far, in the case of non-profits as a whole, research into the effects of product type and donation magnitude on willingness to contribute by Strahilevitz (1999) found that the effect of product type, hedonistic or utilitarian, is affected mainly by large donations rather than small donations; Illustrating the idea that consumers are more willing to by a hedonistic product if it is linked to a large donation rather than a smaller one. Furthermore research by Bearden and Etzel (1982) shows that charity linked purchases can be considered to meet the need to belong to an ‘aspiration group’. Notable also is the peer pressure relating to the group to remain a member by exerting the appropriate philanthropic behaviours. There also appears to be a difference in contributions by age group as found by Kotler and Andreasen (1996), Foster and Meinhard (1997) add to this with results showing a difference in the preferred medium of contribution methods by age group. In addition, charitable donations could be seen as a result of guilt for a lack of ethical actions in one’s life (Burnett and Lunsford, 1994, cited in Bonsu, Main, & Wilner, 2008). Information of where the money is going is a important decisive factor in repurchasing according to recent research by Proenca and Pereira (2008), showing that perhaps the commercial advertising sector of non-profit organisations is of high importance for maintaining an effective communications mix, as a channel of information for the consumer, increasing transparency of resource allocation and achievements.

Understanding and guidance can be found from basic ideologies of consumer behaviour as a starting point. However one must remember that the purchase is for someone else’s benefit rather than the consumer of the product. Buying decisions can be considered to relate to Maslow’s hierarchy of needs, since the consumer decision psychologically involves a need recognition, which would be related to one of the tiers of the hierarchy, namely physiological, safety, belongingness, self esteem, and self actualisation. In Maslow’s model we can relate charitable contributions as self actualisation, “the desire to become all that one is capable of”, although according to the theory the need is the highest of the hierarchy and can only be achieved once all others have been fulfilled. (Koontz & Weihrich, 2008, p. 291). Scramm’s model of communication (1955, cited in Smith, 2002) shows how consumer behaviour can be related to the marketing communications, since attitudes and perceptions are based on the message received by the consumer from the brand. Therefore we can question the extent of communication messages occurring in smaller non-profit firms, since it is evident that larger organisations participate in much more marketing activities. Moreover, general motives of consumer behaviour are thought to be linked to the personality of the consumer and how it directs actions. “Self-monitoring relates to self-presentation and reflects the degree to which one adjusts one’s behaviour according to social cues” (Snyder, 1974, cited in Grace & Griffin, 2006, p. 4). Consumers rating high in the self monitoring scale tend to be more aware and respondent to what others do within a social circle; as such they are more likely to donate if it is the social norm, creating circles of influence.

Consumer behaviour is a field of study that has only been in existence since the 1960’s, and as such there are many elements that have not yet been theorised. Most models are in reference to the process of decision making, rather than the behavioural characteristics that resolve the decision process to buy a certain product. However, we must consider the extent that one could ever understand the mind of the buyer; research trends would of course only show a generalisation of the sample, and of course the mindset will change by product, making studying behavioural characteristics increasingly difficult. Well acclaimed theorist Nicosia (1966, cited in Baker et al, 1988), was among the first to present a model in this field, flowcharting the process of decision making, with the steps from a consumer being exposed to a communication message, to purchasing and having a recognised post purchase experience. Andreasen’s Model (1965, cited in Argyris, 1988) added to this, introducing the realms of attitude factors to the process, revolving around attitude formation and change occurring to changing external stimulus. A common issue of theorists and psychology in general is the issue that one will never know what is inside the consumers ‘black box’, their psychological mindset in decision making, one can only allude to it. The Engel, Kollat and Blackwell (1968, cited in Baker et al, 1988) model refers to the ‘black box’ as a central control unit, which consists of motives and response traits,  including many factors such as perceptions, values, and past experience behavioural characteristics. Present teachings of consumer behaviour tend to refer to a uniform model depicting and grouping the elements that influence behaviour; these are namely cultural, social, personal and psychological factors (Kotler, Wong, Saunders, & Armstrong, 2005).

Baker (Baker et al, 1988) has produced the most thorough model of buyer behaviour, a composition of all of the above theorists, in which the decision making characteristics can be clearly defined. The equation is as follows:

P=f(SPPC, EC, IS, PF, CBBR)

In which a purchase (P) can be defined as a function of selective perception (SP) and the behavioural response (BR) of enabling conditions (EB), information search (IS), precipitating circumstances (PC) and cost-benefit analysis (CB) factors combined. So whilst it is relatively unknown what is involved in the consumer decision making process, there are a number of key areas that can be alluded to for investigation, that appear in most models.

In reference to charitable giving behaviours, treating the non-profit sector as anything other than one general research topic is uncommon, with researchers rarely distinguishing any sub categorisation of organisations, however some current findings are valid for the basis of understanding the differentials in motives and behaviours. It is known and studied that charities may take on a certain pseudo-human personality and hence certain personality traits can aid marketing efforts (Sargeant, Hudson, & West, Conceptualizing brand values in the charity sector:the relationship between sector, cause and organization, 2008), based on the generalised theories of corporate personalities by McEnally & de Chernatony (1999) and Palmer (1996); It was found that the traits held trends based upon the cause, sector and corporate cultural distinctions of the charity, which of course may differ by the various charity focuses and size. Sargeant (1999) , based on all existing knowledge in the field, created a model of donating behaviour, shown below, in which an idea to factors influencing the decision process are elucidated. The issues that have particular relevance to examining the difference by charity size are namely the extrinsic determinants and perceptual reaction factors. However it must be noted that whilst the intrinsic determinants could apply to any charitable cause, the inputs in the form of marketing and communications can greatly affect the feelings of the consumer. Yet it must be noted that this model has yet to be tested, and is merely a portrayal of previous literature in the field.

So whilst information and research is readily available and vast on the non-profit sector as a whole, research tends to be focused on either the cooperation of non-profit and for-profit firms using cause related marketing. That which differs from that area s mainly rooted in the service industry in the form of commercial non-profits and most other existing research on the consumer behaviour of non-profit companies is very shallow, not delving into the motivations and issues of consumer behaviour. There is as of yet, no existing published research that compares the size of the non-profit organisation with the behavioural constraints and patterns, in particular with regards to solely donative non-profits.

3. Industry Analysis

3.1. Revenue Analysis: The Importance of Individual Contributions in the Non-Profit Industry

The structural makeup of the non-profit industry is much like any other, whilst we regularly hear about and are bombarded with advertising communications from the corporate giants in the trade, the reality is that in terms of numbers, these large firms are a tiny percentage of the industry, yet account for the majority of the total revenues, which can be seen in the charts below.

According to the Charities Aid Foundation, the total amount donated by individuals in the year between 2009 and 2010 was £10.6 billion excluding income in the form of legacies, which constitutes around one fifth of revenues in the sector, which was £52 billion in the same year (Charities Aid Foundation, 2010; Philanthrophy UK, 2010). There forth, the importance of individual giving is high.  Looking towards giving patterns in the United Kingdom, we can see the importance of certain donor groups with the statistics that 54% of the population donated in a typical month in the years 2008 and 2009, with the median amount given being £10; However the importance of the larger donations can be seen with 7% contributing more than £100 per month, which equates to just less than 50% of charitable donations from the public (Booth, 2010). Interestingly, looking at the amount of money donated as a percentage of total income, “the top fifth of households give less than 1% of their income, while the poorest give 3%” (National Council for Voluntary Organisations, 2010). Regardless, the United Kingdom in relation to the rest of the world is one of the most generous countries, ranking 8th in the World Giving Index of 2010, which is measured upon the proportion of the public who had given to charity, helped a stranger and given time to those in need (Charities Aid Foundation, 2010).

Interesting to discover in terms of the relevance of the research conducted within this report, is the importance of individual giving from the general public to the various size and focus groups of charities. Whilst the statistics show that overall it is of great importance, it may be that other areas of financing are of more importance for different sized charities; it would be thought that corporate donations and corporate social responsibility partnerships would be more important to the large international focused organisation than the small localised one.

The above table shows research into the financial revenues of charitable organisations, attempting to decipher if there are differences in where the finance comes from between the three different types of charities, those with an international, national or local focus. This research study is not concerned with the numerical size of the organisation, but size in terms of the geographical spread of the benefits. In order to ensure validity of results, all of the charities included are of the same concern; all work in the child poverty sector and are focused on the enhancement of children’s lives. Since it may be the case that financing trends vary according to the type of charity, for example a medically focused charity would received a great deal more revenues from governmental organisations than most. Noticeable in researching this topic was that most charitable organisations do not release enough information to the public in the annual reports about where the revenue comes from, with only a handful of organisations providing enough information to be included in this study. This is even more apparent in the case of finding data for local charities.

The results are fairly inconclusive in finding a strong trend in the revenue breakdown yet we can make some conclusions based on the findings. What can be seen is that the international organisations tend to receive a larger percentage in individual general public donations than the other forms of organisations. Regarding corporate and governmental contributions, what is evident is that international and even national organisations, which tend to be larger and better known, receive a great deal more in corporate donations. Whilst local charities receive a great deal of income from other sources, a particular observation is that they are mostly funded through other charitable organisations and non-governmental grants such as the national lottery funding. It could very well be that the local and even the smaller national charities do not have a strong enough presence in the world of media through advertising to gain sufficient individual contributions from the public. The averages can be seen depicted in the charts below.

3.2. An Outside Glance of Consumer Trust and Confidence

The purchase decision to donate to charity, much like any ‘for profit’ industry, involves a great deal of trust and confidence elements on the consumers’ part to work through the stages of decision making to finally decide to make a purchase. We can even go as far to say that the element of trust in donating is even more prominent than in other industries, since when consumers make a purchase decision, they are not receiving a ‘physical’ product that they can feel post purchase satisfaction with, they are simply expected to believe the benefits of their purchase and that their money is being used well. It is often the case with most charities that a donation does not merit the information as to what activity or campaign it is being used for, limiting the knowledge even further, and thus possibly affecting trust.

A consumer study survey conducted by Read Data Asset Management Group in 2010 showed that 42% of consumers would trust charities with their personal data “which is in stark contrast to government who were least trusted by 36%” (Read Data Asset Management Group Plc, 2010, pg 3). This is an interesting find in terms of confidence since the security of personal data is such a hot topic these days, with the public being incredibly cautious. The same study also examined reasons consumers would stop supporting a charity, finding that the highest rated responses were wasting money on marketing efforts, over contacting consumers and overly emotional marketing communications. These results are quite contradictory to reality since these tend to be the actions taken by the well known large charities, which are also the charities that are most popular amongst donors. We can also consider consumer trust and confidence levels not to be standardised across the industry; it may be that distrust stems from certain charity types or causes. There are a great number of ‘pop up’ charities, created for crisis appeals, which are not well known or established as an entity and as such may not be as trusted. There is also the concern that such charities are started purely to merit the trustees a high wage.

Consumer confidence can be greatly positively influenced by the presence of governmental regulatory bodies, rules and standards within industries. The past decade has seen a dramatic incline in the efforts to regulate and increase transparency, since the likes of the Enron scandal and other highly publicised fraudulent business operations, resulting in the development of the Sarbanes Oxley Act of 2002 to secure the business environment for consumers, and many UK equivalent legal regulations to the same context. Charities, akin to all organisations are required by law to abide to certain legal provisions. The United Kingdom adopted the EU Transparency Directive in 2007, which serves to promote appropriate disclosure of information, with the main areas of focus being “periodic financial reporting and disclosure of major shareholdings” (Ashurst, 2007). Supplementary to the above menti