Preferences, Hidden and Revealed

That it is possible to choose one thing yet prefer another is a very ordinary idea.  Perhaps because it is so ordinary, choice and preference are often mistaken as the same thing, when they are in fact entirely different.  This confusion has crept into fundraising via the fallacy of ‘revealed preference’ where choices are seen as the enactment of preferences. This makes the idea relevant in several respects:
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First, revealed preference is partly responsible for trapping charities in a low income/low reward/low commitment cycle, the endgame of which were the acquisition-based donor strategies which precipitated last years fundraising crisis.  During the ‘marketing revolution’ of the 1970’s and 1980’s, charities came to see fundraising as a branch of marketing, and revealed preference encouraged them to believe that they were mostly giving donors what was being asked for (choice, remember, here being the enactment of preferences).  But the ‘£3 to save the world‘ business model   (h/t Mark Phillips) has long been deficient, if only because the economics of cost-per-acquisition fundraising have been becoming more and more challenging for a number of years.  However, a revealed preference mindset enabled charities to convince themselves they were selling what donors wanted to buy.  This, in turn, led to an acquisition arms race played out in a war room of ever more elaborate and intricate customer journeys, spanning ever more channels and encompassing ever more consumer insights.  This has not ended well.
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Second, revealed preference encourages the view that as donors reveal their judgement through the act of giving, we should be happy with what is offered and not push the envelope too much.  The customer is always right, and markets incorporate all the information you need, right?  And besides, £10bn-£12bn total donations from the public to UK charities is a big deal.  That’s good going, isn’t it?  Well…yes, but.  £10bn-£12bn is no-one’s idea of loose change, but what’s the comparator?  The UK produces goods and services totaling £1.5trn (trillion) each year; at £734bn, Government spending is hundreds of times larger than charitable donations.  British consumer spending, at £378bn in 2014, is also many times greater.  Indeed, increasing the amount donated by the British public from that spent on cheese to that spent on alcohol would be no mean feat.  Current donation levels make the UK by some measures the world’s most generous nation.  But should we take this to mean the British public have somehow found their natural donation limit?  Probably not.
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Third, many organisations – charities included – now use data analysis to try to understand who is most likely to be sympathetic to their cause in the future.  But donor choices often result from ‘satisficing‘, or muddling through, rather than holding out for perfect.  This is why Steve Jobs famously had no time for market research; as he said, “people don’t know what they want until you show it to them”.  Admittedly, qualitative methods are used both offline – in the form of focus groups, donor surveys and capturing other feedback – and online – in sentiment analysis, word clouds, web scraping and other techniques, to counterbalance quantitative methods’ need to extrapolate from past choices.  But quantitative techniques are still dominated by transaction analysis; which is a brake on aiming for ambitious change, as the goal tends to be ‘a bit better than last year’ or ‘a bit better than they are doing’.  Quantitative methods also often do not incorporate granular ratings of wealth or capacity, important as wealth has become more unequal and those able to offer major gifts lie well within the top 1%:
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guardian ons wealth graph
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Finally, and related to the last point, revealed preference can lead to bad strategy.  Availability drives choice – and if the charity you want to support ask for a certain amount by way of a donation, for example, chances are you will anchor your offer around that level.  But this is a choice, not a preference – the supporter is choosing from available options, not those they would most like.  These choices then feed back into available options, and the feedback cycle continues, assisted and amplified by benchmarking, a tool apparently designed to ensure no-one ever tries anything new, ever.  Another facet of this bad strategy is seen the lack of responsiveness to changes in wealth held by Britons.  UK top wealth has grown hugely in recent decades, but many British charities have not aligned their expectation of major giving accordingly.  In a sector where more than 70% of organisations employ two or fewer people this is perhaps understandable.  But a certain lack of ambition holds charities back.  A 2009 Barclays Wealth/Ledbury Research report sums this up in setting the bar for a major gift at £10,000, (see graphic below), even for HNWI’s.  We can and should aim higher than this – indeed we will have to in order to raise more in total than we currently do, rather than cannibalising income from elsewhere in the sector.  Charities represent the best causes imaginable, and should aim to raise more than 0.02% of the money spent each year on consumables.
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Barckays Ledbury graph
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There is urgency in all of this, as marketing becomes more difficult, incomes continue to polarise, the ‘gig economy‘ eats into previously solid professions, the ‘civic core‘ dwindles, and the expectations of younger donors make our existing operations obsolete.  Many charities are pretty good at explaining the ‘what’ of donor behaviour.  However, they are often less good at explaining the ‘why‘.  To get better at this we must escape the trap of believing we can explain behaviour without referring to anything but behaviour, and begin to respect, understand and operationalise the nature and scope of donor preferences, both hidden and revealed.

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