NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Imagine that you are in the wilderness and you see two ponds. In one, there are five children drowning. In the other, there is one child drowning. With time being of the essence, you are unable to save the children in both ponds. Clearly, you would dive into the pond that has five children drowning and save the higher number of children.

When investing in social enterprises or donating to nonprofits, we are faced with an analogous dilemma. All of these organizations seek to do good, and most achieve this to at least some degree; but some do an extraordinary amount of good, while others do far less. Ideally, donations and investments should go to the most effective nonprofits and enterprises — those that provide the highest return on investment (ROI) — rather than the ones that pull at our heartstrings. But people are too often unaware of the enormous differences in relative  “bang for their buck” among investments or donations to different social businesses or nonprofits in the developing world.

Ignoring a Proven Approach

There’s a surprising reason for this: Unlike retailers and manufacturers that use advertising to build their brands and generate sales, the nonprofit and social business sectors are curiously allergic to spending money on advertising – and, more specifically, to saying, “We are better than our competitors, and this is why!” This is very unfortunate because virtually every successful advertising campaign ever created makes exactly that argument. Each time donors or investors decide where to direct their funds, they are, in essence, making a choice between ponds. Shouldn’t that choice be an informed one?

There appears to be virtually no reliable data available on the ROI of advertising nonprofits or social enterprises to prospective funders. But I believe that advertising is dramatically underutilized by these social sector players and that a particular type of comparative advertising could have a dramatic impact. It could not only boost investment in social enterprises but also increase the percentage of money given to international NGOs (currently only 6 percent of total annual U.S. donations are directed overseas). And by providing an additional incentive to maximize their value propositions and comparative “selling points” in order to attract more money from (hopefully) increasingly savvy funders, it could even raise the bar for social business and nonprofit performance.

Selling Suits, Selling Impact

I was president of The Men’s Wearhouse, which began its consolidation of the tailored clothing market in the United States and built its brand with a simple T.V. campaign that went something like this: “You can buy this suit at a department store chain for $350, or you can buy the identical suit for $199 at The Men’s Wearhouse — I guarantee it!” The founder, George Zimmer and his partner, Rich Goldman, realized before my time at the company that a clear comparative presentation of a compelling value proposition would differentiate them from their competition.

Imagine applying this approach to the social sector – for instance, what if the Fred Hollows Foundation or Seva, nonprofits that fight blindness in developing countries, ran the following ad: “For around $50,000 you could train a guide dog to assist one blind person for seven years – or cure 1,000 people of reversible blindness at a cost of $50 per person”?

Or imagine if GiveDirectly ran this ad: “For approximately $8,000, you could support one foster child in Oregon for a year – or you could double the income of an entire small village in East Africa, containing 49 people.”

This type of advertising wouldn’t just be good for individual organizations, it would be good for the entire social sector. In an ideal world, donors and social impact investors would be able to support deserving people domestically and also get the most bang for their buck overseas by incrementally donating and investing more money each year. But unfortunately, U.S. donations, while generous, have remained stuck at 2 percent of GDP for a very long time. Thus, greater impact is most likely to be achieved through more effective donations, rather than overall increases in charitable giving. And though the impact investing sector is at an earlier stage in its development and is likelier to see substantial growth, investor dollars will remain a finite resource that should also be leveraged with maximum effectiveness.

A Crucial Disconnect

Some organizations have shown an awareness of the importance of emphasizing their comparative value. For instance, GiveDirectly is a nonprofit that has used the “gold standard” of the scientific method — via randomized controlled trials (RCTs) — to demonstrate the efficacy of giving direct cash transfers to people in East Africa living on an average of less than 65 cents per day. In the process, it has set a high bar for efficiency and effectiveness – and it isn’t afraid to state this outright. As Michael Faye, GiveDirectly co-founder and board chair, says, “If other nonprofits can operate more efficiently and effectively than GiveDirectly, then donors should support them instead of us.”

But although GiveDirectly has established a great reputation in some sectors of the philanthropy community, how many potential donors know who they are? How many know that direct cash transfers are more effective than microloans at fighting poverty? And how many are aware of Village Enterprise’s multifaceted interventions that may be even more impactful than direct cash transfers? I am guessing it’s a minuscule percentage, and that lack of recognition is typical for many of the highly effective nonprofits listed on websites like The Life You Can Save (where I serve as executive director), GiveWell or The Center for High Impact Philanthropy. I believe a key source of this disconnect is the failure of the social sector to take advantage of the power of advertising.

Reasons for Reluctance

If my assertion is correct, why are nonprofits and social enterprises under-advertising their value propositions? Here are some possible reasons:

• Advertising requires spending and initially losing money before determining the most effective approaches. Manufacturers and retailers know and accept this because unlike nonprofits, they are held accountable only for their bottom line, not their “overhead.” But currently, many donors bristle at their donations being spent on something – like advertising – that is relatively expensive, “unproven,” and not “mission centric.” Social businesses may face similar pressures from mission-focused impact investors – or the founders themselves – who are eager to maximize resources devoted directly to impact.
• An overemphasis on low overhead in the nonprofit world has contributed to scaring organizations away from effective advertising, as Dan Pallotta has argued persuasively in his TED Talk. But in order to advertise a value proposition, you first need to have one, and most nonprofits and social enterprises don’t have quality data proving their effectiveness. Collecting rigorous evidence takes time and investment that few are willing to dedicate
• Comparative value proposition advertising, in particular, can provoke hostility from rival organizations and some of the funders who have been supporting them. While this does not worry successful businesses, it does scare leaders and boards of nonprofits and social enterprises. The social sector culture does not support open competition.

Satisfaction Guaranteed

Here are my recommendations for a different approach:

• Nonprofits and social enterprises must understand and explain their evidence-based value proposition accurately.
• When possible, they should compare their relative value, in comparison to their peers/competitors, in a compelling message.
• Through testing, nonprofits and social businesses should determine their optimal advertising messaging, budget and channels.
• After determining the optimal budget, they should advertise without concern for criticisms of “spending too much on overhead.”
• Donors and investors should hold nonprofits and social enterprises accountable for the accuracy of their claims. And they should fund those with the most compelling value propositions, based on solid evidence.

Since most people give for emotional and social reasons, social sector organizations with excellent value propositions that require analysis must learn how to appeal to both “the head and the heart” of prospective donors and investors. But nonprofits, particularly, lack the expertise to do this – and for the reasons suggested above, they are reluctant to experiment with advertising approaches that could reveal the most effective messaging for their missions.

Yet there are numerous, talented marketing agencies that could create the kinds of campaigns that would accomplish these goals. Once nonprofit and social business leaders, their boards and funders see the positive ROI of these campaigns, their reluctance to spend money on advertising would be significantly diminished. I guarantee it!

Charlie Bresler is volunteer executive director of The Life You Can Save, a nonprofit dedicated to reducing extreme poverty and its devastating effects on over 700 million people globally.

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