SOCIAL SERVICES
Here’s why nonprofit fees are giving people the chills
How social services are financed matters to how people feel about the organization
An important difference between public/nonprofit organizations and private organizations is that public/nonprofit organizations have diverse revenue sources. Unlike private organizations that mostly rely on revenue from commercial activities such as transactions, public/nonprofit organizations can have major revenues from economic transactions, public money such as taxation or government grants, and donations from either individuals or large funders.
For example, in 2019, 45% of the countywide revenues of King County, WA, were charges for services, and 44% of the revenues were generated by taxations (retail sales and use taxes 22% plus property taxes 22%). Some studies suggest balancing the diversity of revenue sources, but to do that can be costly. Therefore, in most situations, we observe public/nonprofit organizations having one dominant type of revenue, either public funding in terms of grants or tax, commercial revenue mostly from service charges, or donations.
There is no doubt how a government agency or social service organization finances its mission will influence its operations. Particularly, it would make a crucial difference when the economy is shocked by external forces.
For instance, nationwide lockdown during the COVID-19 pandemic puts agencies and organizations that rely on service charges onto the edge of collapse. The United States Citizenship and Immigration Services (USCIS) announced on Aug 25, 2020 that the agency would avert an administrative furlough of more than 13,000 employees. The USCIS ultimately canceled the furlough plan, but its resource shortage was not offset by the Congress. To solve the problem, the agency then adopted a typical business strategy: charging higher fees for premium services.
How do you feel when knowing how USCIS suffered and survived during the economic shock?
Or take another example into account, how do you feel when noticing that the Metropolitan Museum of Art canceled its 50-year admissions policy and now non-New Yorkers must pay? In a recent study published by Public Administration Review, my co-author, Dr. Huafang Li from Grand Valley State University and I reveal that most people feel bad about a social service organization generating most of its revenue from fees.
The first impression of one person or one organization is important. Such an impression will most likely determine whether you would interact with it. An extensive social psychology research shows that people form their impressions of one person or organization based on two traits of the objective: warmth and competence. Both warmth and competence are general concepts that cover a large group of common traits.
For example, warmth includes friendliness, generousness, kindliness, and so on; and competence contains effectiveness, efficiency, and other characteristics related to one’s capacity. People’s following behavior intentions vary depending on the combination of warmth and competence. A take another example, people tend to admire those who are warm and competent, help those who are warm and incompetence, be defensive against those who are cold and competent, and be contemptuous of those who are cold and incompetent. A similar theory also applies to how impressions influences whether people interact with the organization: they simply stop purchasing or supporting an organization they think is cold and incompetent.
In our study, we sent out a survey embedded with a randomized experiment to a total of 1,600 adults who lives in the U.S. Respondents were randomly assigned to three experimental conditions. In each condition, we showed them the revenue structure of one hypothetical elderly care center. The major revenue source for the care center was government funding, service fees, and donations, respectively, in three experimental conditions. After reading the financial information, respondents reported how warm and competent they felt about the organization and whether they would interact with it.
After two rounds of experiments, we found that people reported the center with main revenues from donations/government funding systematically warmer and more competent than the one relies mostly on service fees. The most salient impression difference is warmth. In general, the reported warmth of the fee-based organization is about 10% lower than its donation-based counterpart. Although we found no difference for people’s intention to purchase, the attitudinal differences provide important insights for public and nonprofit management.
Why do people denounce service fees?
Psychologists suggest that people hold a strong anti-profit belief which is associated with fee-charging. Such repugnance against profit comes from people’s perception that the intention to seek profit is greedy and even immoral. This phenomenon could be more salient when profit-seeking intention invades into fields that ought not to be marketized for profits in people’s opinions.
Will people stop interacting with fee-based agencies or organizations? Not very likely, because sometimes they do not have good substitutes. However, the negative impression will keep undermining people’s trust in social service providers. The challenge here is that public and nonprofit leaders rarely have the flexibility to change revenue sources, at least in the short run.
But the good news is there are other ways to influence people’s perception. Public and nonprofit organizations should learn more about communication and marketing, especially how branding may change their impression and reputations. Recent evidence from consumer behavior research has shown that a simple reframe of the fee-charging or other business-like practices can help justify these behaviors. Therefore, communication is the key; otherwise, people will feel like they are being exploited when receiving public and social services.
