In the animal kingdom, mutualism describes a symbiotic relationship between two species that provide benefits to each other by virtue of their closeness. The concept of symbiosis has also been applied frequently to the link between the social mission activities and the revenue activities of a nonprofit health care organization. However, these relationships have historically been considered more one-sided than mutualistic, with the income-generating part of the organization providing the lion’s share of benefits to the non-income-generating part; for example, a nonprofit hospital offsets costs of treatment for low-income patients by charging market rates to those who can afford care. In the business world, this model is known as cross-subsidization, and among organizations that follow it, it’s common for marketing activities to focus exclusively on the income-generating part of the operation.
However, a recent study published in the Journal of Marketing Research presents an intriguing alternate view. The authors examined the marketing efforts of Aravind Eye Hospitals—a nonprofit organization that has provided eye care services to millions throughout India since it was established in 1976—and discovered that its mission-driven activities actually helped boost its bottom line.
For marketers and managers in the health care industry and beyond, this discovery is a game changer. It reframes the social mission activities of a nonprofit from pure cost into activities that can actually bolster its revenue. Without the full awareness of this reality, organizations may underinvest in their social mission, losing opportunities to service its targeted communities and, by extension, the related potential to increase financial gain. Moreover, it opens the door for new considerations for any nonprofit organization in the process of choosing or redefining its business model. For marketers in particular, the evidence may help them in choosing where to steer marketing funds and building campaigns—not to mention getting key organizational leaders and sponsors on board with their plans.
Marketing Is in the Eye of the Beholder
Along with running its traditional brick-and-mortar health centers, which treat paying and subsidized patients, Aravind Eye Hospitals has made free eye care services accessible for hundreds of thousands of people living in remote villages and other rural areas via a series of outreach camps. Their efforts have been nothing short of transformative for the communities they serve; in 2016–2017 alone, Aravind screened over 580,000 patients in over 2,500 outreach camps, which resulted in 92,000 surgeries at their base hospitals. The success of the outreach camps in providing care to low-income patients has brought up some interesting questions:
1) Do marketing activities targeted exclusively to poor communities have any spillover in attracting patients who can afford their hospital fees?
2) Could Aravind’s outreach camps be considered an advertising expense rather than a pure cost expenditure?
To find out, the researchers developed an econometric model to compare the incremental cost of a camp versus the amount of incremental revenue generated, to find out just how much, if any, spillover effect the outreach camps have on the number of new subsidized and paying patients. First, they identified the interdependence between the R (revenue) and M (mission) sides of nonprofit organizations that worked on cross-subsidized models. Next, they conceptualized and demonstrated that the interdependence was influenced by marketing efforts toward M markets and that those efforts resulted in a spillover demand from R markets.
Among their key findings, the researchers discovered:
- Contrary to longstanding concepts of cross-subsidization models for nonprofit health care organizations, mission-driven activities can help drive revenue activities.
- By hosting outreach camps to provide care for low-income patients, Aravind Eye Hospitals had seen a positive spillover effect in the number of paying customers it attracts.
- Compared to the incremental cost of running an outreach camp (M), Aravind Eye Hospitals has seen a higher percentage of incremental gains in revenue (R).
Implications for Marketers
The researchers concluded that the marketing efforts for Aravind’s outreach camps did indeed have a positive spillover effect on its financial side by increasing the number of paying patients. They also uncovered several factors that may help explain the phenomenon. For one, the existence of the camps, and the marketing efforts conducted in rural communities to attract free patients to visit them, served as an advertisement to paying patients. Furthermore, the marketing efforts toward the mission market educated the revenue market about eye health and disease just as much as their targeted audiences. The fact that the camps are often run in remote areas brings up the possibility of a negative spillover: since outreach camp patients do not pay for cataract surgery and receive free transportation between the camp and the hospitals, some paying patients might be induced to become outreach camp patients, thereby “cannibalizing” some of the revenues.
The findings turn the conventional idea of how mission activities relate to revenue-generating activities on its head. The evidence suggests that marketers and managers should not view the social mission efforts of their organization as a pure cost activity (and by extension, they should not consider cutting these activities a quick fix in saving money versus generating income). The knowledge that marketing mission activities can enhance revenue growth should be taken into consideration for nonprofits when choosing a business model, cross-subsidized or otherwise. It also allows marketers and managers to think bigger and bolder when assessing their target audiences and planning new campaigns. As in the symbiotic relationship in the natural world, it’s a beautiful thing when two seemingly competing forces can work together to ensure their mutual success.
From: Gupta, Sachin, Omkar D. Palsule-Desai, C. Gnanasekaran, and Thulasiraj Ravilla. “Spillover Effects of Mission Activities on Revenues in Nonprofit Health Care: The Case of Aravind Eye Hospitals, India.” Journal of Marketing Research 55, no. 6 (December 2018): 884–99.
Jamie Ludwig is a freelance writer and media expert based in Chicago.