As many of our clients suffer losses in membership, enrollment, or donors, the conclusion tends to be that these losses are caused by increased customer price sensitivity in the economic downturn. As a result, many organizations decide that the answer is to cut costs, thereby enabling them to reduce the price to consumers. While reevaluating expenditures in order to run a tight ship is critical in a recession, it tends to mask the proverbial 800-pound-gorilla in the room, which is the problem of poor levels of perceived quality.

What people are more sensitive about now is making sure that, before they buy something, the quality justifies the price. This perspective would not suggest that price is unimportant and quality is key, but that the two must be linked. The tradeoff that institutions make between cost and services defines the value participants see for each dollar spent or donated.

The reason we believe many organizations are suffering financially is because their customers consider their services to be mediocre, and are not willing to pay a premium for it during a time when frugality is the watch-word. In data we’ve collected across hundreds of non-profit organizations, there is no correlation between enrollment and price increases. Rather, we believe enrollment responds to perceived quality, and price should be set so that it matches the perceived quality (if price exceeds the perceived quality, you will lose customers). We’ve studied data from many of our clients and found that those whose perceived quality of services is measurably outstanding are not suffering the membership or enrollment drops experienced by those providing mediocre quality. Cutting costs can be a red herring, since it could create a vicious cycle in which it further reduces the capacity to provide services and thereby further reduces the perceived quality.

Universally, consumer willingness to pay for a service is a combination of financial ability, commitment to the mission, and perceived quality of the service. To use a metaphor from retail, if you go shopping for a new sweater, whether you buy the sweater and how much you will spend is a combination of your disposable income, need (is it 10 degrees in January and you forgot to pack a sweater in your suitcase?), and your perceived quality of the sweater (materials, style, and brand). Often times, non-profit institutions are highly attentive to their customers’ financial ability and commitment, but fail to effectively monitor perceived quality, allowing it to drop to mediocre levels, which is ironic because this is the factor that institutions have the most control over.

Many studies have proven that the survey question “likelihood to recommend your institution to a friend” (known by the concept of promoter or net promoter score) is the best question for predicting a customer’s likelihood to stay or leave as well as the institution’s future growth or decline. Measuring Success, through its Peer Yardstick methodology, has developed tools that address this outcome and study its key drivers for many segments of the Jewish world including federations, schools, JCCs, and synagogues. It is fascinating to observe the aggregate percent of promoters across the types of institutions in the Jewish world and compare them to declines in enrollment or membership. Camps average 78%, Day Schools average 54%, JCCs average 48%, and Federations average 29% (for donors who gave $1-10,000 gifts). It should not be surprising then to note that many Jewish camps have waiting lists, while schools and JCCs are working hard to keep enrollment stable, and many federations have been losing donors. Keep in mind that these scores represent the average across all institutions that have participated in the data tools used in each sector and there are obviously individual institutions that scored much higher and lower. And naturally, the intensity of the experiences for each type of institution are also significantly different. However, this underlines the point that we need to improve perceived quality first and foremost, and should cut costs only in areas data indicates do not significantly contribute to perceived quality.

Measuring Success uses the Peer Yardstick™ methodology to enable organizations to measure and improve perceived quality, identify the key drivers of improved quality, and connect this data to customer price sensitivity, organizational financial sustainability, and projected participation. To learn more about how Measuring Success can help your management team and board make smarter decisions using data and improve your organization’s perceived quality, please contact me at Sacha-newsletter@measuring-success.com.

*Thanks to our friends in the associations and foundations noted above that were kind enough to allow us to share their most recent data.

Sacha.