Assessing the Negative Impact of Competition in Direct Mail Fundraising

Transcription

1 Assessing the Negative Impact of Competition in Direct Mail Fundraising Abstract of Work in progress Submitted for presentation at the 2010 Direct/Interactive Marketing Research Summit October 9 10, 2010, San Francisco, CA Authors Griet Verhaert, Ph. D. Candidate (Ghent University, Belgium) Prof. dr. Arnaud De Bruyn (ESSEC Business School, France) Prof. dr. Dirk Van den Poel (Ghent University, Belgium) Key Words: Competition, List exchange, Direct mail, Fundraising Research Topic: Customer acquisition, Customer relationship management, Database marketing Contact Information: Griet Verhaert, Department of Marketing, Faculty of Economics and Business Administration, Ghent University, Tweekerkenstraat 2, B-9000 Ghent, Belgium. Phone: , Griet.Verhaert@UGent.be

2 Assessing the Negative Impact of Competition in Direct Mail Fundraising Introduction The lack of consumer data outside the firm is a primary barrier to CRM (Bell et al., 2002). Moreover, firms neglecting their competitive environment may make suboptimal decisions (Musalem & Joshi, 2009). Mainly because of a lack of the necessary data, the direct marketing literature has ignored the effects of messages from competing companies on individual response behavior. In this study, we investigate this issue by considering list exchange in fundraising. For charities, direct mail remains very successful (Direct Marketing Association, 2010). To acquire new donors, charities often exchange their household lists. It remains unclear whether exchanging an address/donor could also hurt the loyalty of the donor with the initial mother charity. In sum, we seek to bridge an important gap in existing advertising literature by empirically controlling competition pressure for more than 20 brands at an individual level. Background At first glance, competitive advertising decreases the sales of a focal company (Unnava & Sirdeshmukh 1994; D Souza & Rao, 1995; Burke & Srull, 1988; Keller, 1991; Bagozzi & Silk, 1983). However, for new or modified products, competition may lead to an increase in sales (Jewell & Unnava, 2003; Lee & Lee, 2007; Prins & Verhoef, 2007). Because we focus on existing charitable brands, we expect negative effects of direct mail competition rather than positive effects. H1: Increased competition in direct mail will negatively affect the revenues of existing charities. Since the development of a strong brand, and thus brand equity, is crucial in resisting aggressive competitors (Aaker, 1991), it seems that stronger, well-known brands are better protected from competition than less familiar brands (e.g., Kent and Allen, 1994; Yoo and Mandhachitara, 2003). H2: Charitable brands with higher brand equity are less negatively affected by competition than charities with lower brand equity.

3 Method Experimental Design. We designed a field experiment (N=72809) in which we controlled the competition between 24 European charities during ten months. We operationalized competition trough manipulating the exchange of household lists. By exchanging, the level of competition increases because donors receive more recruitments. We systematically varied the number of received recruitments, going from 0 to 24 mailings. Model. Because we want to discern whether donors remain loyal toward their mother charity, we applied logistic regression. The first set of explanatory variables involved past donation behavior (RFM) and mother mailing pressure. Beside this, to investigate the effect of competition for each individual mother charity, we constructed mother-specific variables reflecting the level of recruitment pressure. This approach enables us to explore whether some charities are more or less affected by competition. Key Findings Logistic regression confirms previous research regarding the first set of parameters. Interestingly, every estimate for competition is negative revealing that all mother charities are hurt by competition (Table 1). However, the impact of competition differs across charities. To explain this effect, we rely on the literature on brand equity. Therefore, three experts rated each charity on brand equity (Aaker, 1991) resulting in a score (α= 94). Next, we applied linear regression to investigate the impact of brand equity onto the parameter estimate of competition. The analyses reveal that the higher the brand equity the less negatively affected by competition (β=.572, p<.005). Both hypotheses are confirmed. Discussion This study extends prior research on competition. Although we considered 24 charities, an important limitation remains that we did not capture all competition in the market. Next, further research needs to explore donor and recruitment characteristics in competitive interference. Fundraising management

4 needs to bear in mind the harmful effect of competition. Small charities are advised to better protect their donor list until they established a strong brand. REFERENCES Aaker, David A. (1991), Managing Brand Equity: Capitalising on the Value of a Brand Name. New York: Free Press. Bagozzi, Richard P. and Alvin J. Silk (1983), Recall, Recognition and the Measurement of Memory for Print Advertisements, Marketing Science, 2 (3), Bell, David, John Deighton, Werner J. Reinartz, Roland T. Rust, and Gordon Swartz (2002), Seven Barriers to Customer Equity Management, Journal of Service Research, 5 (August), Burke, Raymond R. and Thomas K. Srull (1988), Competitive Interference and Consumer Memory for Advertising, Journal of Consumer Research, 15 (June), Direct Marketing Association (2010), DMA 2010 Statistical Fact Book. New York: Direct Marketing Association. D Souza, Giles and Ram C. Rao (1995), Can Repeating an Advertisement More Frequently Than the Competition Affect Brand Preference in a Mature Market? Journal of Marketing, 59 (April), Jewell, Robert D. and H. Rao Unnava (2003), When Competitive Interference Can Be Beneficial, Journal of Consumer Research, 30 (2), Keller, Kevin L. (1991), Memory and Evaluation Effects in Competitive Advertising Environments, Journal of Consumer Research, 17 (4), Kent, Robert J. and Chris T. Allen (1994), Competitive Interference Effects in Consumer Memory for Advertising: The Role of Brand Familiarity, Journal of Marketing, 58 (3), Lee, Byung-Kwan and Lee, Wei-Na (2007), Decreasing Advertising Interference: The Impact of Comparable Differences on Consumer Memory in Competitive Advertising Environments, Psychology & Marketing, 24(11), Musalem, Andrés and Yogesh V. Joshi (2009), How Much Should You Invest in Each Customer Relationship? A Competitive Strategy Approach, Marketing Science, 28 (3), Prins, Remco and Peter C. Verhoef (2007), Marketing Communication Drivers of Adoption Timing of a New E-Service Among Existing Customers, Journal of Marketing, 71 (April), Unnava, H. Rao and Deepak Sirdeshmukh (1994), Reducing Competitive Ad Interference, Journal of Marketing Research, 31 (August), Yoo, Boonghee and Rujirutana Mandhachitara (2003), Estimating Advertising Effects on Sales in a Competitive Setting, Journal of Advertising Research, 43 (3),

5 Table 1 Parameter estimates competition pressure Charity Competition Brand Equity , * 5, * 5, *** 5, *** 4, *** 4, *** 5, ** 4, *** 3, *** 3, *** 5, *** 3, ** 3, *** 5, *** 5, *** 2,77 * p <.05. ** p <.01. *** p <.001.