The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life (30 page)

One day, Brian got the bright idea of earning some money for himself as an ad man. He donned a suit and tie, and approached businesses around Boston, telling them he could produce advertisements, jingles, and posters for them. He did pretty well for himself in this field, and after graduation, landed a job at Young & Rubicam as a copywriter, much to the dismay of his parents. “They asked me, ‘Why did we spend all that money sending you to Harvard and then you go into an industry where you don’t even need a college degree?’” Brian recalls.

At Young & Rubicam, Brian learned just how far inside the box people in the ad industry could be. “We would produce hundreds of good ideas, and then the agency tested everything in focus groups,” he recalls. “But they refused to go with any of the good ideas that came from the testing sessions because the ideas didn’t
have anything to do with the client’s corporate strategy. Instead the agency went with boring, ill-conceived commercials that had everything to do with strategy and nothing to do with selling potato chips or Jell-O,” which happened to be what they were selling.

Brian needed a better place to sell his creative ideas, so he took a job at J. Walter Thompson, where he made million-dollar beer commercials. “I’d go into the board room of Miller where a bunch of old white guys in suits made all the decisions. I’d play the youth card and tell them, ‘I’m the only guy in this room who was in a bar at one in the morning,’” Brian says. “I was winging it with my ideas. I didn’t go in with PowerPoints and a lot of data. I just spoke with a lot of passion. Eventually I got to be good at making presentations to rich people.”

Brian walked around Madison Avenue, resplendent in Armani suits and Gucci loafers. He thrived in the
Mad Men
–esque world of cocktail lounges and beauty everywhere—beautiful ads, beautiful products, and beautiful people. But he grew restless working for other people, so he started his own advertising firm. His talent for selling ideas paid off when he cofounded Schell/Mullaney in 1990. The firm served clients in the media and high-technology businesses, such as Dow Jones, Computer Associates, and Ziff-Davis.

On the outside, Brian was a smart, competitive businessman who swam with the Madison Avenue sharks. On the inside, he was walking around with the memory of what had happened to his little sister. In 1996, he and his partner sold the firm for $15 million dollars, and at the age of thirty-six, Brian was “done. It was an unbelievable amount of money,” he says. “Suddenly I realized I had the freedom to do what I really wanted.”

Brian was too entrepreneurial to follow the typical conquests of the newly rich. He didn’t try to sail around the world or earn his PGA card. He was the type of guy who loved to innovate, to push the envelope. Maura’s memory drove him to want to help children,
so he went on a medical mission to China. There he witnessed the social isolation children with cleft palates suffer and how easily their lives could be transformed with a simple surgical procedure. So, in 1998, he partnered with Computer Associates founder Charles Wang to found Smile Train.

Not bad for a Madison Avenue adman.

The Business of Smiling

People such as Brian who are founders of charities are driven by passion, but making a charity a real success requires acute business sense. “Most charities are very inefficiently run by do-gooders,” Brian insists. “No matter how inefficient or incompetent you are, it is almost impossible for a charity to go out of business. As long as you have a set of PowerPoint slides with pictures that can make people cry, you can raise enough to stay in business.”

Smile Train is unique among charities because Brian set it up like a business. In the same way Brian innovated as an adman, he destroyed the curve when it came to both raising money and doing good works. Basically, he turned the old missionary-style do-gooder model on its head. Instead of sending Western doctors to perform cleft surgeries, Smile Train developed state-of-the-art 3D technology to educate doctors in developing countries in cleft palate surgery (Brian calls this the “teach a man to fish” model.)

Smile Train is also unique because it conducts field experiments to see which kinds of donor incentives work best. For example, says Brian, Smile Train ran a lot of tests to see which would work better: a “before” and “after” photo of a child, or simply the “before” photo? As an adman, Brian knew the standard formula was to show both the before and after photos. “After all, it was a famous advertising edict that people want to see the ‘before-the-wash’ and ‘after-the-wash’ shots, as they do in Proctor and Gamble detergent ads,”
he says. “But when we ran the test, we found when we only ran the ‘before’ photos, the response rates went up 17 percent. Why? The picture of the kid with the cleft palate haunts you.” The implication, he says, is that the photo of the child in need made the plea for money personal. Donors felt they
had
to help the kid with no upper lip.

Smile Train also conducted several field experiments to discover what kinds of photos could get the donation envelope opened. They tested responses to forty-nine different envelopes emblazoned with pictures of black, brown, Asian, and white boys and girls of various ages and wearing different expressions—some smiling, some frowning, some staring, some crying. As Smile Train discovered, faces are powerful attractants, and certain kinds of faces draw more donor money than others.

In December 2008, Smile Train tested twenty-one of these different photos on the outer envelope of another direct-mail package assortment. The winning photo attracted 62 percent more donors than the one that donors liked least. Smile Train discovered that the photo of the sad-looking Caucasian child (who was Afghani) drew the most response. Why? Brian conjectured that white donors—who comprised the majority of the donor pool—preferred to help someone who looked like them.
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The “Once and Done” Option

By the time we got to know Brian, he had honed in on several unique ways to raise money, which were guided by his unswerving use of field experiments. He would send potential donors letters that would “invite” them to donate, or to “save the life of a child.” The messaging in the letters would reflect the learnings from years of field experimentation on direct mail that drove Smile Train’s annual donations up to nearly $100 million per annum.

Brian was intrigued by our ideas about behavioral economics and charity. He wondered if we could help Smile Train outperform the best direct-mail letters that he had personally spent years developing and refining. We decided to set out by starting with Smile Train’s best-performing letter and working to improve it. Though we didn’t know it at the time, we had begun a path toward one of the most interesting, large-scale field experiments we had ever run.
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Back in April 2008, we started with a test. We sent letters to 150,000 households. The control group received a standard Smile Train solicitation asking for a donation. We had no special text or slogan on the outer envelope. The experimental group received letters sealed in an outer envelope that read, “Make one gift now and we’ll never ask for another donation again.” The letter told prospective donors they could exercise this right by checking a box on the reply card that said, “This will be my only gift. Please send me a tax receipt and do not ask for another donation.” Donors were given one more option; they could also elect to receive “limited mailings” (which could prove to be a boon for Smile Train in postage savings).

This mechanism might seem a little crazy. Many fundraising experts, manuals, and guides would mock the very idea, because one of the most important tenets in fundraising circles is to develop a so-called donor pyramid.

A visual representation of the types of donors a typical charity has and how numerous they are.

In a donor pyramid, the base includes dedicated donors who will give to your cause again and again. When you find such donors, why on earth would you tell them “thanks for helping our cause this one time! Now, we will never contact you again”?

In the months after the first test in which the mailing was sent out, the donations started to trickle in. And all signs pointed to one thing: our experiment had been a gigantic success. In response to the letters sent out in April, the standard letter raised $13,234 from 193 donors, whereas the “once and done” letter raised $22,728 from 362 donors. In total, the experimental treatment raised much more money and engaged many more donors than the standard letter did. Interestingly, only 39 percent of donors checked the opt-out box.

The “once and done” campaign was so successful that we decided to step back and use it in other field experiments. In total, we sent mail solicitations in five waves to more than 800,000 individuals between April 2008 and September 2009.

Again, we found a dramatic increase in giving under the “once and done” campaign. The “once and done” letters generated a response rate nearly twice as large as the standard letter. It also brought in slightly larger gifts (on average, $56 versus $50). Consequently, the “once and done” campaign raised more than twice as much initial revenue as the standard letter ($152,928 versus $71,566), yielding a remarkable $0.37 per letter mailed.

Of course, if subsequent donations were lower in the “once and done” group, then the conventional wisdom would have been correct. That is, we should not have been urging people to “bug off.” Interestingly, what we found was that the subsequent revenue raised turned out to be nearly identical across the “once and done” and the standard letters.

Combining the revenue from both initial and subsequent donations, “once and done” generated a total of $260,783 compared to $178,609 for the control mailings—an increase of 46 percent. In addition, because of the restrictions on future mailings dictated by checkbox responses, Smile Train also saved mailing costs because they were not continually sending to an uninterested donor.

Just having such a successful drive is important, but we wanted to dig into why “once and done” letters work so well. What was going on?

Reciprocity: The Key to Customer Satisfaction

After analyzing the hundreds of thousands of observations across the various field experiments, we found that
switching the power from the charity to the donor
was the game changer. By giving recipients the chance to opt out, Smile Train basically offered donors a
gift
. It relieved them from having to say no to future solicitations. Instead of merely asking for money, the charity basically said, “You scratch our back, we’ll scratch yours.”

Traditional economics assumes that, acting in their own best interest, many people will just smile and toss away the direct-mail appeal. Yet, not all of us are selfish. Some of us, even some economists, are nice people who really do want to return a kindness with a kindness.
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Knowing this, appealing to people’s sense of reciprocity can work. Nonprofits, especially, like to send preprinted address labels, maps of the world, or calendars, hoping to get a donation in return.

More generally, our result highlights hidden returns associated with incentives that are overlooked if one maintains a standard economic model. For instance, our interpretation also means that the psychological message that is conveyed by incentives—whether they are perceived as kind or as hostile—has important behavioral effects. Intentions matter: if you are a company that cares about customers, then it’s important to know that customers really appreciate being asked their opinions, and they love being asked if they want to opt out.

Our explorations in the world of charity have big implications. In policy circles, people want to know the answer to this question:
If we get rid of the tax write-offs for charity, what happens to all the charities that hold society together? What happens to government grants?
Before detailing the effects of such proposed changes, we need to understand why people give to charities in the first place.