Synonyms

Determinants of donor loyalty; Factors for maintenance of financial support

Definition

Donor retention, in the sense of establishing long lasting relationships with donors, is an important goal in fund-raising. Here, it is understood as a target latent variable which should be explained with the help of a structural equation model. Trust and satisfaction as well as two other factors (commitment and involvement) are latent variables which determine donor retention.

Description

Raising funds has become extremely difficult in the past decades. A more or less constant amount of charitable donations opposes a growing number of nonprofit organizations (in the following: NPOs), and the competitive pressure has grown tremendously (Sargeant, 2001). Therefore, the reasons why donors continue donating and supporting organizations play an important role for those NPOs. The knowledge of the significance of determinants of donor retention is an essential requirement for the formulation of effective and efficient fund-raising strategies.

Donor retention represents the target variable, which has to be explained through determinants. In the commercial field of marketing, the related phrase customer retention is often referred to as a noncoincidental sequence of market transactions between a buyer and a supplier (Royce, 1971). In general, donor retention can be understood as a long-term and consistent relationship between the donor and the NPO.

For NPOs, long-term relationships with donors are advantageous, since many projects and activities are of lasting or permanent duration and require well-founded, long-term financial planning with continuous and dependable financial support. Due to the decline of government subsidies, such planning is not possible without donations. Promoting retention among donors with appropriate actions is a central task in fund-raising.

When considering the effects of donor retention, one can differentiate between stability-related, revenue-increasing, and cost-reducing potentials (Hennig-Thurau, Gwinner, & Gremler, 2002). Over time, the relationship gains stability, which translates into security for the organization. This is based on the insights of the needs and intentions of their donors gained through the long-term relationship. Donor retention also represents a central determining factor in expanding an NPO’s share of the donation market. Along with an increase in the average donation size, with which the donor provides increased support for a project, a loyal donor can also show a readiness to increase her/his donation frequency. This contributes to an increase in the NPO’s donation volume (Sargeant, 2009). Promoting retention among donors is a means of reducing costs, something that is appealing particularly with regards to the widespread request for NPOs to allocate their resources efficiently (Lee, 2002). These cost-reducing potentials are created by the fact that focusing on existing donors allows for a reduced emphasis on donor recruitment. The acquisition of new donors can be neglected, since the NPO is able to maintain its existing donor base by developing and strengthening their relationship on the one hand and because the NPO will automatically acquire new donors through recommendations and references on the other hand. Tight relationships between the NPO and its donors also create savings in information and coordination costs. This means, costs for donor care are thus reduced.

In summary, it can be said that donor retention can increase the capabilities and profitability of the NPO and enables the organization to concentrate its efforts on fulfilling its mission. In order to actualize these effects of particular importance to NPO, it is necessary to foster the retention of donors. The following paragraph will introduce the influencing factors.

Research in the area of commercial marketing centered a lot around behavioristic, organization-specific determinants of customer retention in the past. Two latent variables dominate the research: trust and satisfaction (Mittal & Kamakura, 2001).

Trust is usually defined with two dimensions: ability describes the confidence of one party regarding the performance capability of another party, i.e., in this case the trusted NPO (Shelley & Polonsky, 2002), while willingness describes the expectation of the donor regarding the NPO’s reliability (Sirdeshmukh, Singh, & Sabol, 2002).

Satisfaction, understood as a process of comparing expectations of donors with the actual perceived performance of the NPO, is a very important determinant of retention (Garbarino & Johnson, 1999).

Besides trust and satisfaction, two other determinants have been discussed to have an impact on donor retention: commitment and involvement.

Commitment is usually defined through three different dimensions: normative, calculative, and affective. Normative commitment is an emotion of duty and responsibility (Allen & Meyer, 1990) and is an important aspect for donor retention. Moral concerns or the fulfillment of perceived obligations frequently dominate the motivation of the ongoing donations to an NPO (Bennett & Ali-Choudhury, 2009). Calculative commitment represents a rationale and the “emotionless” position of the donor to the supported organization. A net “gain” that is based on a rational cost-benefit analysis fosters the retention of the donor (Johnson, Herrmann, & Huber, 2006). The last dimension, affective commitment, is an emotion of inner, psychological affection, which is based on a true sympathy of the donor for the NPO (Allen & Meyer, 1990).

The fourth determinant, involvement of a donor, can be understood as a permanent interest in the NPO and the donor’s perceived personal relevancy of the NPO (Mittal, 1995). While involvement in this context “merely” represents the personal meaning of the NPO for the donor, commitment describes a more holistic approach and signifies the appreciation of the entire relationship with the NPO.

The previous paragraphs already indicated that the four determinants trust, satisfaction, commitment, and involvement have a direct effect on donor retention. According to the literature, commitment represents the central influencing variable of donor retention as it forms the basis for the willingness to continue with the exchange relation (Sargeant & Woodliffe, 2007). But also the other determinants are mentioned as important prerequisites to establish a stable donor-NPO relationship (Shabbir, Palihawadana, & Thwaites, 2007).

In addition to these direct effects, the determinants trust, satisfaction, and involvement also have indirect effects on donor retention (Causal Inference). First of all, all three variables increase the level of commitment, which then has a positive impact on donor retention (Sargeant & Woodliffe, 2007).

A further interdependency exists between satisfaction and the establishment of trust. Trust is based on experiences with the NPO. The experiences gained in a certain period of time facilitate the foundation of trust; they support the creation of the donor’s expectation with regard to the reliability and the integrity of the NPO (Crosby, Evans, & Cowles, 1990). A further interdependency is the influence of involvement on satisfaction. Through the intensive dealing with the charitable donation, the donor becomes aware of the valuable support she or he gives. This realization fosters her or his satisfaction and helps to keep up the financial support for a longer period of time (Bennett & Ali-Choudhury, 2009).

Naskrent and Siebelt (2011) suggest a structural equation model aligning these interdependencies and relationships. This model is depicted in Fig. 1. All arrows represent the influencing relations between the factors as described. In addition to the arrows, Fig. 1 also discloses the strength and significance (symbolized by the stars) of the path coefficients which give evidence on how much an exogenous construct influences an endogenous construct. The data, conducted from a study interrogating 364 donors, allows the following interpretation: Negative values show a relation that is contrary to the postulated hypotheses. Values close to zero represent a weak explanatory contribution of a latent variable, while values close to one imply a strong relationship. In the model of Naskrent and Siebelt, three of the postulated hypotheses show insufficient path strengths and significances, while the other hypotheses could be verified.

Trust, Satisfaction, and Donor Retention, Fig. 1
figure 2014figure 2014

Trust and satisfaction as part of a structural equation model of influencing factors of donor retention (Source: Naskrent and Siebelt (2011))

Full size image

A further angle to evaluate the inner model is the coefficient of determination (abbreviation: R2). The R2 represents the share of the explained variance of the latent variable. This means that it analyzes the effect strength of all exogenous constructs explaining an endogenous construct. Values of R2 range between 0 and 1. The higher the value of R2, the higher is the explained variance. Results above 0.3 are average and values below 0.19 are weak. For donor retention, the study of Naskrent and Siebelt (2011) yields an R2 of 0.33, for commitment 0.63, for trust 0.69, and for satisfaction 0.25. Therefore, all endogenous variables deliver satisfactory results.

The empirical tests conducted by Naskrent and Siebelt (2011) confirmed six of the nine hypotheses, which represent a nomological validity of the model. Even if involvement and satisfaction do not directly influence donor retention, they do have an indirect effect.

Discussion

In the study of Naskrent and Siebelt (2011), involvement does not seem to have a direct effect of donor retention. A theoretical explanation for this could be that NPOs and charitable donations cause more extreme forms of involvement than commercial consumption situations where values in the middle range are quite common (Rothschild, 1979). Donor involvement might have more bipolar characteristics: Either people possess an extremely high involvement with regards to an organization and are consequently willing to engage emotionally and to support the NPO financially or they do not show any involvement, meaning they would never consider giving money to it (Rothschild). Therefore, involvement might rather represent a precondition for the acquisition of new donors and as a result does not have a direct but an indirect effect on donor retention.

The fact that the satisfaction of the donor does not have a large-scale impact on donor retention shows that the latent variable does not have the general importance that the marketing and nonprofit research ascribes to it. Some studies already yielded the result that donor satisfaction does not have such a big impact on retention as it is frequently assumed (Arnett, German, & Hunt, 2003; Michalski & Helmig, 2010). Anyhow, the authors (Arnett et al., 2003) concluded that the result of their study does not neglect the common importance of satisfaction for the donor-NPO relation.

These speculations are starting points for further research. A replication study could for example yield valuable findings. A further research gap exists in a long-term study (Longitudinal Data Analysis) of donor retention.

Cross-References

Altruism

Charitable Donations