This past weekend I came across an article from Harvard Business Review with the title, “How Retailers Use Personalized Prices to Test What You’re Willing to Pay.” Yes, the idea of “personalized prices” is terrifying, but it’s also amazing.
Sure, businesses around the globe are mining your data right now to determine how much you’re willing to spend on a vacation getaway to Aruba, and yes, that is unbelievably creepy, but it’s also incredibly innovative. It’s a testament to the amount of data and computing power available today.
Personalized pricing is simply the idea that an organization can determine where you, the consumer, fit on a demand curve at any given point in time. Think back to economics 101 for a moment and you’ll recall that the higher up on the demand curve you are, the greater a price you’re willing to pay. The lower you are on the curve, the less you’ll pay.
Personalized pricing simply applies this basic economic concept to our daily lives. Within the Harvard Business Review article, the author describes his experience using Orbitz to plan a vacation. When he planned the trip via the Orbitz mobile app his price was $117 less than when he looked up the exact same package on his laptop. How could that be? Personalized pricing.
The author investigated further and ultimately received this response from Expedia, Orbitz’s parent company, “pricing differences found between the app and website can be due to the fact that suppliers allow different prices to be offered to mobile customers as well as members (no fee to join) who are logged in.”
Personalized pricing, or some corporate monolith just trying to make extra profit? You tell me.
Regardless of how eerie, unethical or plain old “messed up” you think it is, personalized pricing seems to be here to stay (hey there, Amazon). What implications does that have on you and me? Sure, we may spend a bit more of our money on certain goods we like, but what applications does this concept have on our sector — on charitable giving?
If you change “personalized pricing” to “value-based pricing” the connotation changes a bit. Less ominous, more friendly, right? Value-based giving, the concept we’ll be focusing on, is the idea that certain donors are willing to give more than others. That’s obvious. Where value-based giving dives deeper is in the idea that an organization can target each donor to give the “right amount” or the most they’re willing to give.
An easy example that helps solidify this point is your annual end of year appeal. Have you ever segmented the ask amount based off of a donor’s historical giving? For example, donors in the “under $100” segment receive an appeal with an ask amount of $50, while the other segment, the “over $100” group, receive an appeal with the ask amount of $150. That’s personalized pricing.
Where for-profit companies have gone further is in collecting and aggregating even more data to help in their pricing decisions. For example, when you first Google search “vacations to Aruba,” for-profit companies know that. Data vendors (if you’re squeamish, don’t Google search “consumer data vendors”) provide anything and everything related to consumer purchasing habits.
Nonprofits have access to this information as well (for a fee of course) but most refrain from using it. Yes, there is an ethical dilemma (is it really a sound practice to buy data on your donors?), but that hasn’t stopped nonprofits from supporting wealth screening companies, data co-ops and other data-sharing practices.
But then the question becomes, would extra data actually help with personalized pricing, or as we’ve been calling it, value-based giving? That’s up for debate.
Vendors such as ExactAsk are trying to find out. Founded in 2012, ExactAsk’s parent company, Arjuna Solutions strives to “make it easy for any person to understand how to satisfy, motivate and connect with their most profitable customers and donors.” Their predictive technology aims to help nonprofits ask their donors for the right amount of money.
This is personalized pricing 101.
From their website, ExactAsk explains briefly how their software works: “ExactAsk’s software uses an innovative machine learning algorithm to provide individual nonprofit donors with precise, data-informed ask amounts.” This is exactly what Orbitz does for their pricing, and it’s great that nonprofits have access to the same functionality through vendors like ExactAsk.
But, it begs the question, does it work? It’s too soon to tell, but the data seems promising.
Is it the future?
Personalized pricing and value-based giving aren’t going away. If anything, they’ll become even more integrated in our society. With that in mind it is important to move forward with a fair bit of caution.
Predictive models are exactly that, predictive. A model may suggest someone is a $500 donor, but that doesn’t necessarily mean they’re a $500 donor to your organization. Pairing predictive models with descriptive data is the most holistic approach. That’s what we do at MarketSmart for major and legacy donors and the results speak for themselves.
Approach personalized pricing with a grain of salt. Machine learning, artificial intelligence, data brokers, they’re all great (sort of), but what is even more meaningful is understanding your donor’s connection with your organization.
As more data and more computing power become available it is important to remember that donors are people. Donating, unlike purchasing a new skillet on Amazon, is intimate. Learning more about your donors’ true interests and motivations for giving should be paired with predictive models and value-based giving for the best effect.
Applying this at your shop
Unfortunately, personalized pricing is not a silver-bullet. As with most everything in life, it’s a bit more complex than simply plugging data into a machine and getting more donations. But, at your shop, you can take some of these concepts and bring them to your next all-staff meeting.
If nothing else, remember this:
- Predictive models can help you be more data-driven in your ask amounts.
- Pairing this with an understanding of your donors’ true interests and motives can be transformational.