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Consideration of Marketing Policy
Deployed By A UK Animal Charity
Sangeeta Sardiwal
Charities face intense competition when raising funds similar to other
businesses. Research has shown little is known by charities as to what
relationship exists between marketing spend and the investment returns from
individual marketing channels, which contribute to total net funds. This is
important for a charity to know, as in the future they can use this information to
determine whether their net funds will stay healthy or whether their financial
position is in jeopardy. This paper attempts to investigate what configuration of
marketing channels used by a UK animal charity would give the greatest
benefit to the animal charity. A case study is applied of the Royal Society for
the Protection of Cruelty to Animals (RSPCA). A range of hypothesis were
developed and tested to see how different levers of the system affected the net
funds of the charity and the total awareness of the charity over time. The
results through investigation using system dynamics a modelling approach
highlighted that when determining marketing policies it was important to
consider not only the income return for each marketing channel but also the
effect different marketing channels had on the total awareness of the charity.
This paper would provide benefit to charity organisations, policy makers and
other businesses in helping them to devise different marketing channel policies
that would provide the greatest benefit to an organisation, whereby the benefit
results in both increased levels of net funds and the total awareness of the
charity.
Keywords: Marketing policy, charity, system dynamics modelling
1.0 Introduction
Charities exist to create a better society in which they are committed to
voluntary action (Charity Commission, 2005), whether its Oxfam working
towards ending human poverty or the RSPCA working towards stopping the
suffering of animals.
Marketing in charities takes a range of different forms, whether it involves web
marketing, external communications or other marketing trials. Marketing is
crucial to the long term survival of a charity. The role of marketing is not just to
increase the funds raised but marketing also acts to increase aided public
awareness of the charity and to sell products and services. In a survey of UK
charities 29% said that the prime role of marketing for charities was to sell
products and services, where as 10% of charities believed it was to raise the
media profile of the charity (see figure 1).
Any comments would be welcomed, please send to London South Bank University 103
Borough Road LONDON, SE1 0AA, UK [email protected]
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Figure 1: RSM Robson Rhodes (2006), Investigating the primary role of Marketing for
UK charities
The ability of a charity to relate its marketing costs to its investment return is
an important issue. This is even more critical in situations when the charities’
net funds are depleting over time. Similarly this is an important issue for other
types of businesses to address. The aim of this research is to investigate what
configuration of marketing channels used by a UK animal charity would give
the greatest benefit to the charity, the RSPCA. A case study has been applied
of the RSPCA. There is a need for the charity to achieve a high level of
efficiency and effectiveness. One way of doing this is by working closely with
the public to reduce the suffering of animals. Importantly the charity receives
no lottery or state aid, and the RSPCA like other charities have become
dependent on voluntary donations and legacies to meet increased running
costs. Established in 1822 history has shown that the RSPCA was the first
national animal protection society in the world. The charity later received royal
approval and continually working towards exposing cruelty, carrying out
practical welfare work and developing sufficient funds to increase its growing
national network (RSPCA, 2008).
1.1 Problem Articulation
From the literature it is evident that there is intense competition between
charities in order to attract funds from donors. Increased competition for
charitable funds leads to greater cash flow tightening. Research carried out by
RSM Robson Rhodes in 2006 involved sending out surveys to finance and
marketing directors in UK charities to investigate issues associated with
marketing in charities. Some of the highlights of this research indicated that
76% of all charities that answered in the study reported that they failed to
monitor the results of their marketing spend. After further research the
majority 70% indicated that they monitored the marketing results to some
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extent, whilst 8% were not sure to what extend the marketing results were
monitored (see figure 2) (RSM Robson Rhodes, 2006). More worryingly the
trend among charities has been to increase marketing spend without
monitoring the marketing returns generated.
Figure 2: RSM Robson Rhodes (2006), Investigating the extent to which marketing
results are monitored by UK charities
It has been identified that one of the main gaps in the literature has been this
need to look at how effective marketing expenditure has been in improving the
return on marketing investment. This has been the key emphasis of this
research to address as there needs to be both a greater understanding of
marketing within charities and understanding of the different marketing returns
on investment. The problem is further escalated in situations when it is not
clear what the marketing and marketing related costs are, as they are not
evident in the profit and loss sheet and are hidden among larger budgets
(RSM Rhodes, 2006). Charities must be accountable to the public. There has
to be a shift in culture that charities can no longer take their charitable status
for granted.
1.2 Research Framework
In investigating what configuration of marketing used by a UK animal charity
would give the greatest return on marketing investment, system dynamics is
used as an approach to model the problem situation. The advantages of
system dynamics is that it allows us to replicate the behaviour of a real life
system and then to test out various management policies in a virtual world.
This is in order to see what affect these policies have on different parts of the
system without having to interfere with the real life system, in this case a
charity. Thus system dynamics is policy driven with the purpose of solving a
problem, by discovering policies that will improve the behaviour of the system.
Importantly we are all embedded as part of this charity system at some times
of our lives, whether we are charity donators, part of a charity organisation or
whether we receive charity. A great deal of complexity exists among a charity,
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as relationships change between the charity, the state and public. There is the
challenge for charities to meet legal requirements, and undergo better
regulation as the charity grows in size. There has been a continued challenge
for charities to meet growing demands for services in an ever changing
environment. System dynamics helps us to adopt a holistic view, whereby we
are concerned with looking at the aggregation of the system. System
dynamics will help us better understand this complex system we are all part of
(Sterman, 2000). System dynamics helps us to obtain hard figures, if we
spend ‘X’ on marketing we can see what return ‘Y’ we would achieve by
forecasting the future behaviour of the system.
As part of the SD paradigm system dynamics focuses on feedback systems,
which is highly relevant when modelling charity systems (see section 1.4.2
illustrating the conceptual model). The 5 phrase approach to system dynamics
has been used as outlined by Sterman (2000). This is highlighted below: The
first phase is problem articulation which involves structuring the problem and
determining the main variables. The reference mode is determined which
illustrates the typical behaviour of the system. Following from this phase 2
involves formulation of the dynamic hypothesis, which involves developing
causal loop diagrams to illustrate the relationships between factors and to
identify the main feedback structures that exist.
Phase 3 involves formulation of the simulation model, estimates are given for
various parameter values, and stocks and flows are used to represent the
system. Phrase 4 involves testing the model to see if it replicates the
reference mode. Further robust under extreme conditions testing is
undergone. This has helped us see the sensitivity of different parameters.
Phase 5 is to use the model and to develop alternative strategies and policies,
whilst using different scenarios. The software Stella 8.1.1 was used to do the
stock and flow diagrams and Vensim PLE software was used for the causal
loop diagrams.
1.3 Research Contribution
The ability of an organisation not to be clear on the return of their marketing
spend in terms of income being generated and other benefits being created,
would only result in donors having a lack of confidence and trust in the charity.
This would lead to less donations being given by charity supporters (RSM
Robson Rhodes, 2006). The model could be used by marketing teams within
charities to help prove to donators whether their marketing activities have
resulted in a good return for the charity, and thus help to instil confidence and
trust in the charity. The research could be even more significant in terms of
aiding policy as under the Charities Act 2006 charities have to prove that there
is an identifiable benefit to the public. This is where system dynamics can play
a powerful part in helping to illustrate the benefits that a particular charity can
bring and help justify why an organisation requires charitable status, and
should get tax exemptions from the government.
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1.4 Applied system dynamics methodology
The following five phases of the system dynamics methodology are applied
below:
1.4.1 Phase 1
The animal charity is not aware of what future incomes will be generated from
the marketing channels that they use. These marketing channels include
legacy marketing, direct marketing, door to door marketing and other
fundraising. The dynamic problem for the RSPCA is that the net funds are
depleting over time although they remain positive there are less reserves
available. This has been due to a range of factors, such as increases in staff
pension costs. The RSPCA is unaware if there are enough incoming
resources generated from marketing channels to cover running costs in the
future. The current reference mode for the RSPCA is that the net funds are
increasing at a slower rate, with total outgoings being smaller than incoming
resources. After 2 years into the future the net funds continue to increase at
an even slower rate. At year 3 the total outgoings become greater than
incoming resources (see figure 3).
Millions of Pounds
Total Outgoings
Net Funds of RSPCA
Incoming Resources
Time (years)
0
2
3
Figure 3: Reference Mode for the RSPCA
Internal and External Levers: The RSPCA’s marketing management has a
number of internal levers that they can use within the charity to help them
address the above dynamic problem. At times when the RSPCA’s marketing
management need to increase marketing incomes, they can use the following
internal levers that exist and vary any of these.
Income generation lever: The percentage of the RSPCA’s net funds to be
spent on income generation.
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Marketing budgets lever: The percentage of the income generation budget to
be spent on legacy marketing, direct marketing, door to door marketing and
other fundraising marketing channels.
Ongoing administration spend lever: The percentage
administration spend for each of the marketing channels.
of
ongoing
Initial admin spend lever: The percentage of the available budget that should
be spent on the initial administration spend for each of the individual
marketing channels concerned.
In this paper we are primarily concerned with the internal levers to improving
the income generated from different marketing channels. However an
important external lever to consider has been what effect the UK’s inflation
rate has had on net funds.
1.4.2 Phase 2
The dynamic hypothesis is that an increase in the budget available for income
generation will increase the income generated by different marketing
channels, resulting in net funds to start growing rather than depleting. Figure 4
illustrates the conceptual model, with consideration given to the main factors
affecting the charities total funds raised.
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Factors affecting the charities total funds raised
Cash generated
R1 Funds
generated
gross income +
+
Net income from +
marketing channel
+
R2 marketing channel
income generation
total
awareness of
charity
+
Net total funds raised
return from
marketing
channel
B1 Budget
allocation
+
budget allocated for
income generation
R3 Charity
Awareness
total spending on
marketing
+
+ marketing spend effect
on charity awareness
+
+
new calls reported
+ Unaddressed calls
-
B2 Followed up
calls
+
Calls investigated
B3
Non-followed
up calls
+
Calls not
investigated
Figure 4: Conceptual model of charity marketing
The following reinforcing (positive) loops encouraging growth exist.
R1 Funds Generated Loop:
As the total net funds raised increases, the budget allocated for generating
further income for the charity increases. Increases in budget allocated for
income generation increases the total amount that is spent on individual
marketing channels, such as direct marketing and legacy marketing. This
leads to an increase in marketing income generated as a result of the different
marketing channels enforced. This increases cash generated for the charity
which increases the net total funds raised.
R2 Marketing Channel Income Generation Loop:
The increase in total spending on marketing increases the gross income
generated from marketing which increases the net income generated from the
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marketing channel. This loop acts as a positive loop increasing the cash
generated which results in an increase in the net total funds available.
R3 Charity Awareness Loop:
When total spending on marketing increases this increases the effect that
each marketing spend for the different channels has on charity awareness.
This increases the total awareness of the charity which feeds back to increase
the marketing income generated. The marketing income then increases the
cash generated and feds into the reinforcing R1 loop for funds generated, as
above.
The following are balancing loops that provide the purpose of providing some
corrective action essentially to set about restoring the system.
B1 Budget Allocation Loop:
The increase in net total funds raised increases the budget allocated for
income generation for the charity, which decreases the net total funds raised.
B2 Followed Up Calls Loop:
As the number of unaddressed calls increases this leads to an increase in the
number of calls investigated by the animal charity, which decreases the
number of unaddressed calls waiting attention.
B3 Non Followed Up Calls Loop:
Increases in unaddressed calls waiting attention leads to an increase in the
number of calls not followed up, which decrease the number of calls in the
animal call centre awaiting attention.
1.4.3 Phase 3
Formal model based on stock and flow diagrams
Seven sectors were incorporated into the model. These were:
1. Net funds raised sector
2. Awareness of animal charity sector
3. Call centre sector
4. Legacy marketing sector
5. Direct Marketing sector
6. Door to door marketing sector
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7. Other fundraising sector
We were concerned with modelling the charity over a long period of time 15
years. The main sector net funds raised sector can be seen in figure 5, with
incoming resources coming from a variety of marketing channels increasing
net funds.
Net f unds raised
direct marketing income
other income
inf lation increase in costs
Net f unds
other outgoing resources
excluding v oluntary income
incoming resources
percentage of outgoing costs
door to door income
budget av ailable f or
income generation
percentage of f unds to be
spent on income generation
legacy income
other f undraising income
Figure 5: Net funds raised sector
The following assumptions were made:
Regarding awareness of the RSPCA:
The maximum value that the total awareness of the charity can have is 10%.
The maximum effect on awareness that an individual marketing channel can
have is 0.025.
Regarding incoming resources:
Other income is added to incoming resources for the charity that is generated
through other sources other than marketing, such as from investments,
membership submissions and other charitable activities.
Regarding total spending for individual marketing channels:
Total spending on individual marketing channels consists of administration
spend and advertising spend.
Returns of marketing channels:
The individual returns of investment for each of the individual marketing
channels have been used to calculate the gross income for each marketing
channel. The figures of individual returns of investment have been worked out
from figures published in the RSPCA’s Trustees report and accounts 2006
(see figure 6).
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Marketing Channel
Expected Marketing Return
(For every £1 spent on marketing channel what you would
expect your return to be, figures are taken in thousands)
Legacy marketing
58587/1329 = 44
Direct Marketing
20339/7426 = 2.7
Door to Door
Marketing
7390/3150 = 2.3
Other Fundraising
11003/2050= 5.3
Figure 6: Returns from individual marketing channels1
The model focused on modelling the positive associations of marketing. This
was to focus on the modelling the returns of investment for the following
different marketing channels, legacy marketing, direct marketing, door to door
marketing and other fundraising marketing channels. The same structure was
applied to modelling each of the marketing channels, for example this can be
seen for legacy marketing in figure 7 below.
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Individual Figures taken from RSPCA (2006) Trustee’s Report and Accounts (2006) Available from
<http://www.rspca.org.uk/servlet/Satellite?blobcol=urlblob&blobheader=application%2Fpdf&blobkey
=id&blobtable=RSPCABlob&blobwhere=1177591332249&ssbinary=true&ContentType=application/pdf> [Accessed 16th February, 2008]
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Legacy Marketing
total awareness of
the animal charity
legacy income
Gross income f rom
legacy genertaion
percentage of budget
f or initial admin spend
total spending on legacy
admin spend on legacy
percentage of admin spend
based on adv ertising spend
adv ertising spend on legacy
budget av ailable f or
income generation
percentage of budget spent
on legacy adv ertising
Figure 7: Sector for legacy Marketing
In addition it was important to include a sector in the model for the total
awareness of the animal charity that was being created as a result of
marketing spends for each of the different marketing channels (see figure 8).
Awareness of the animal charity
total spending on
direct marketing
total spending on legacy
starting direct marketing spend
starting legacy spend
direct marketing
ef f ect on awareness
legacy spending
ef f ect on awareness
total spending on
other f undarising
total spending on door
to door marketing
starting door to door
marketing spend
total awareness of
the animal charity
other f undarising
ef f ect on awareness
door to door spending
ef f ect on awareness
starting other f undarising spend
Figure 8: Awareness of the animal charity sector
The total awareness of the animal charity has impacted the number of new
calls being received of reported animal incidents to the charities’ call centre
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(see figure 9). This is important as the RSPCA can decide whether they will
follow up on public calls or not, which could led to animals being saved from
abuse.
Call Centre
Calls in centre
Calls inv estigated
New calls
calls being inv estigated
total awareness of
the animal charity
percentage of cases inv estigated
New calls in reported
incidents to animal charity
calls not inv estigated
prev ious y ears calls
total calls not inv estigated
percentage of cases
not inv estigated
Figure 9: Call Centre sector
1.4.4 Phase 4
The current reference mode is reproduced from years 0 to 2 and the future
reference mode exists between 2 and 15 years as shown in figure 10 below.
The reference mode shows that the net funds are slowly depleting over time.
The charity needs to increase incoming funds faster than the rate of its
outgoings.
1:
2:
3:
1: Net f unds
3000
2: total outgoings
3: incoming resources
2
1:
2:
3:
1500
2
2
1:
2:
3:
1
0
0
2
1
3
1
3
4
8
Y ears
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1
3
3
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Figure 10: Reference mode of the animal charity, illustrating the total outgoings and
net funds over a 15 year period
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The following example tests the dynamic hypothesis highlighted earlier in
section 1.4.2.
Scenario:
After 3 years the percentage of funds to be spent on income generation was
increased from 15.5% to 25%. The net funds started to increase with total
outgoings being less than incoming resources (see figure 11).
1:
2:
3:
2: total outgoings
1: Net f unds
3000
20000
3000
1:
2:
3:
3: incoming resources
1
1500
10000
1500
3
2
1
3
1:
2:
3:
0
0
0
2
1
1
2
3
2
0
4
8
Y ears
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18:41
Figure 11: The effect on net funds of the RSPCA when changing the percentage of the
funds to be spent on income generation
This resulted in increased incomes being generated for all of the RSPCA’s
marketing channels between the years of 3 and 15 as shown in figure 12. The
greatest growth in income being generated from a marketing channel was
shown to be with legacy marketing. Thus the dynamic hypothesis from phase
2 is correct. An increase in the budgets available for income generation leads
to an increase in income generated by the different marketing channels,
resulting in positive net funds being created.
1:
2:
3:
4:
5:
1: direct marketi… 2: door to door i…
3100
1:
2:
3:
4:
5:
3: legacy income
4: other f undrais… 5: budget av aila…
3
5
1550
3
1:
2:
3:
4:
5:
5
3
0
1
0.00
2
3
4
5
1
4
2
3.75
5
1
7.50
Y ears
Page 2
2
4
1
2
4
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Figure 12: The effect on marketing channel incomes when changing the percentage of
the funds to be spent on income generation
1.4.5 Phase 5
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The model was used to test a number of hypothesis, these are indicated
below with the results.
Regarding the External lever:
H1: If there was a dramatic increase in inflation the net funds of the charity
would deplete leading to financial collapse of the charity, assuming all other
parameters were kept the same.
Testing of H1
With an increase of inflation to 18.5% after 3 years it is clear that the charity’s
net funds would deplete over time (see figure 13), and in the long term the
charity could not to continue to operate at such a high inflation rate, as
outgoing resources would be greater than incoming resources. In this
environment the charity would be unable to survive financially.
1:
1: Net f unds
500
1:
250
1
1
1
1
1:
0
0
4
8
Y ears
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Figure 13: Net funds generated at a range of inflation rates
In figure 14 you can see the effect of inflation being switched off between the
years of 0 to 3 years. The net funds increase. However as inflation gets
switched on and takes effect the net funds reach dangerously low figures.
Thus H1 is correct.
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1:
1: Net f unds
500
1:
250
1
1
1:
0
0
1
8
Y ears
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Figure 14: The effect of inflation being switched on and off on net funds
Regarding internal levers:
H2: If we increase the budgets spent on legacy by a small amount this would
accommodate for large inflation increases and keep the charities’ net funds
positive.
Testing of H2
Increasing the budget spent on legacy income from 3.7% to 5% in year 3
during times of a high inflation rate of 18.5 % has resulted in continued
increase in net funds being generated. H2 is correct (see figure 15).
1:
1: Net f unds
500
1:
250
1
1
1:
0
0
1
1
4
8
Y ears
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Figure 15: Increasing the budget for legacy income during times of high inflation
H3: If all the individual budgets for the marketing channels were set to be
100% of the available budget for income generation, the total awareness of
the charity would be at its maximum.
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Test of H3
Hypothesis 3 proved to be correct as shown in figure 16. When all the
marketing channels were increased to 100% the total awareness of the animal
charity reached its maximum at the start of the simulation.
1:
1: total awareness of animal charity
0.15
1
1:
0.075
1:
0
0.00
1
1
3.75
7.50
Y ears
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Untitled
Figure 16: The effect of increasing the budgets of the different marketing channels to
be 100% of the available budget for income generation, on total awareness.
H4: If there was an increase in legacy spending after the total awareness of
the animal charity had been achieved of 10%, the increase in legacy spending
would have no effect on the total awareness of the animal charity.
Testing of H4
Hypothesis 4 is correct. The increase in legacy spending in year 3 from 3.7%
to 60% does not increase the total awareness of the charity. The initial legacy
marketing spend from 0 to 1¼ years results in the maximum total awareness
being generated (see figure 17). Thus any additional increases in legacy
spend has no effect on the total awareness of the RSPCA.
This is because the total awareness from legacy spending has reached its
maximum of 0.025 at a smaller time period of 1 ¼ years, with a smaller
percentage of budget being spent on legacy marketing. Therefore the strategy
of increasing the budget for just one marketing channel after a longer time
period would not be effective, as the total awareness of the animal charity has
already reached its maximum.
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1: total awareness of animal charity
0.1
1
1:
2:
2: legacy spending ef f ect on awareness
1
1
1
1:
2:
0.05
2
1:
2:
2
2
2
0
0.00
3.75
7.50
Y ears
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Untitled
Figure 17: The total awareness of the animal charity when increasing legacy spend
H5: If we keep each of the marketing channel budgets the same amounts say
30% this would keep the total awareness of the animal charity at its maximum
and raise net funds sufficiently to cover outgoings in the future.
Testing of H5
The results indicated that if all the marketing channel budgets were set to 30%
of the available budget the net total funds would increase significantly and the
maximum total awareness would be reached at the start (see figure 18).
Hypothesis 5 is correct.
1:
1: total awareness of animal charity
0.15
1
1:
0.075
1:
0
0.00
1
1
3.75
7.50
Y ears
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Untitled
Figure 18: The effect of increasing all marketing channel’s budgets by the same
amount on total awareness of the animal charity
1.5 Conclusions and Recommendations
The model is very sensitive to changes in inflation rates. During times of high
inflation rates the budget spent on legacy advertising could be increased
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marginally, as the increase of income generated would be enough to keep
funds positive. When devising what would be the best way to distribute
budgets accordingly to each of the different marketing channels it cannot be
assumed that the majority or the entire budget should be spent on the
marketing channel that gives the greatest return in income. The effect that
each marketing channel has on total awareness is crucial to receiving new
calls of animal abuse. Therefore in deciding how would you distribute your
marketing budget on marketing channels you must take into account the total
awareness of the charity that has been created and the income generated.
The following recommendations are made:
It is recommended that the system dynamics model developed here should be
used as a tool by charity managers to see how the structure of the complex
charity system creates behaviour. This is very significant as the tool can be
used to solve pressing problems for a charity such as how to increase the
total funds available. Furthermore the system dynamics model can be used to
develop more effective policies to improve system behaviour. My work to date
in the application of system dynamics has been centred on modelling the UK
public health and social care system. However having carried out this
research it is clear that similar principles could be applied to the National
Health Service (NHS). The NHS spends millions in marketing NHS services. It
would be interesting to see how different marketing channels used within the
NHS translate into increased usage and awareness of NHS services. This
would bring extra value in drawing inferences between systems. The model
could be developed by incorporating the negative associations of marketing,
where it can be investigated whether particular strategies adopted by the
animal charity may deteriorate the core brand. For example people may
misinterpret a particular animal campaign, which could lead to bad publicity
being created. These could be the unintended consequences of particular
marketing policies, which could lead to policy resistance.
References
Bruce, I 2005 Charity Marketing: Meeting need through customer focus.
Available from
<http://www.icsabookshop.co.uk/pdfs/readingroom/477.pdf> [Accessed
16th February, 2008].
Charity Commission 2005 Charity working at the heart of society. Available
from<http://www.charitycommission.gov.uk/Library/tcc/pdfs/StratReview05
colour.pdf> [Accessed 16th February, 2008].
RSM Robson Rhodes 2006 UK Charities Marketing Survey Analysis
Summary Available from
<http://www.centreforcharityeffectiveness.org/pdf_files/charity_mktg_surve
y.pdf> [Accessed 16th February, 2008]
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RSPCA 2006 Trustee’s Report and Accounts (2006) Available from
<http://www.rspca.org.uk/servlet/Satellite?blobcol=urlblob&blobheader=ap
plication%2Fpdf&blobkey=id&blobtable=RSPCABlob&blobwhere=1177591
332249&ssbinary=true&Content-Type=application/pdf> [Accessed 16th
February, 2008]
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<http://www.rspca.org.uk/servlet/Satellite?pagename=RSPCA/RSPCARed
irect&pg=about_the_rspca>[Accessed 16th February, 2008]
Sterman, D.J 2000 Business Dynamics Systems Thinking and Modelling for a
Complex World, Irwin McGraw-Hill
Wikipedia 2008 Paradigm Available from
<http://en.wikipedia.org/wiki/Paradigm> [Accessed 16th February, 2008].
Glossary
Marketing- This is about putting together the planning and implementation of
goods, whilst emphasising the needs of the customer (Bruce, 2005)
NHS- National Health Service
Paradigm- This is the ‘organised whole’ of the main branches of philosophy
that forms a worldview (Wikipedia, 2008)
Stock and Flow diagrams- The stock tells us the condition of the world, the
history of what has flowed into the stock and the flow (rate) tells us how the
world is changing.
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