Sunday, June 4, 2017

It's All Competition to Me: How Nonprofits Navigate the Land of Substitutes

One of my biggest takeaways from this week's reading is the threat of unassuming substitutes. While nonprofits related to children, disease, and the environment all seem very different, they are all competing for the same charitable dollars in your wallet. Through the eyes of donors (nonprofit customers) I believe that almost every nonprofit is a substitute for every other one, making it acutely difficult for nonprofits to distance themselves from one another.

In the for-profit world, J. Crew and Home Depot are not competitors. In the nonprofit world, Dress for Success and Habitat for Humanity are, likely fulfilling the same need for many donors. Spending $50 on a blouse at J. Crew will not get in your way of spending $50 on a drill at Home Depot.  However, donating $50 and 10 hours of time to Dress for Success will likely cause you to donate less money and time to Habitat for Humanity, if any at all. While there are people that have a special connection to the mission of one organization or another, more often people feel moved by many organizations but can only donate time and money to a few.

In Porter’s “The Five Competitive Forces That Shape Strategy,” he writes that an organization must, “distance itself from substitutes through product performance, marketing, or other means” or else suffer in terms of profitability and growth. Both that article and the Marketer’s Toolkit excerpt note that substitutes may be very different and easy to overlook, like power tools and neckties or pens and PCs. If all nonprofit organizations fulfill the same needs for donors, how are they to differentiate and distance themselves from the competition?   
One solution lies in the reasons people donate time and money. Network for Good[1] lists 14 reasons why people give money, noting everything from self-image to memorialization, while National Council for Social Service[2] lists reasons that people volunteer time, stating making a difference and enhancing a CV, among others. While the reasons listed may seem obvious, I never remember being part of a conversation at any of the three nonprofit organizations I worked for where we discussed donor or volunteer motivation. Nonprofits emphasize the power of the mission statement and the impact of their programming to get donors. While important, many nonprofits have moving missions and effective programs so those elements alone are not enough to differentiate a nonprofit from its substitutes.

Nonprofits can distance themselves from one another by tapping into specific donor needs. For example, Livestrong capitalized on the fact that people donate to look like a good person and feel part of a group. Donating, however, is often anonymous, so in exchange for a Livestrong donation people received an expertly marketed yellow wristband--a unisex item that can be worn daily. To date, over 80 million wristbands have been sold, meaning over $80 million in sales for the Livestrong Foundation.

Porter writes, “When the threat of substitutes is high, industry profitability suffers.” The threat of substitutes will always be high in the nonprofit industry but utilizing donor motivation to differentiate will allow organizations to increase growth and profitability.



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