Pricing for Charities: Pay-What-You-Want and VRM

Charitable giving has an intriguing relationship with rational pricing theories. The supply of charitable products is essentially inexhaustible. Price of a charitable gift is not based on supply and demand, with curves meeting at an efficient clearing price.

And yet, there is a competitive marketplace connecting patrons and charities. From schools and radio stations to global conservation and intervention, millions of charities compete for attention and dollars.

In my last post, I argued that markets are about more than prices. So too is the world of charities. Today the NYT reports on current research by John List and Dean Karlan investigating how and why people give, and what makes them give more or less to a particular cause at a particular time. A good read.

The research highlights several unique influences on charitable giving, with many lessons about which conversations matter most.

In particular, people give for that “warm glow” rather than for any perceived material return. Perhaps that isn’t a surprise, but when connected to economics it changes the conversation. It turns out that matching donations, from employers for example, are valued more as a social trigger than as an economic motivator. People give until the trigger is reached–until they’ve met the socially determined mark for making a difference–and they don’t give more just because a match is a greater multiplier, even though economic theory would suggest the greater multiplier would create more giving.

So one of the questions for charities is how then do you maximize the warm glow and the amount of giving it triggers? And not suprisingly, ROI calculations and traditional economics have little to do with it.

At Project VRM, we’ve talked a lot about how markets are more than transactions, more than just prices. Markets are conversations and relationships. That makes much of List & Karlan’s research applicable to all of VRM, and especially for Doc Searls‘ efforts to reinvent our relationship with Public Radio.

Radiohead and Nine-Inch-Nails have already broken ground with commercial Pay-What-You-Want product launches, which is in practice a lot like the Public Radio mantra that turns 10% of listeners into subscribers every year. Both bands’ efforts were huge successes as promotions, although the jury is still out on the longer term impact. (It should be noted that Nine Inch Nails was more of a “freemium” model as they offered limited editions and additional tracks for a fee.)

As digital products become “free” to distribute, it may be that artists can generate more interest, greater goodwill, and greater profit, by thinking more like charities and less like lawsuit-wielding rabid dinosaur music studios. In which case, it behooves them to read up on List & Karlan’s research.

And apropos for VRM, it behooves us to do so as well.

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