Competition in the Nonprofit Sector:

A Strategic Marketing Framework

by

Robin J. B. Ritchie *

and

Charles B. Weinberg

Working Paper – Version March 2000

Please do not cite without consulting the authors

* Robin J. B. Ritchie is a Marketing Ph.D. Student and

Charles B. Weinberg is Alumni Professor of Marketing,
Faculty of Commerce and Business Administration, University of British Columbia,
2053 Main Mall, Vancouver, British Columbia, Canada V6T 1Z2
Tel: 604-822-8327; Fax: 604-822-4697
e-mail: robin.ritchie@commerce.ubc.ca; weinberg@interchange.ubc.ca

This research was supported in part by a grant from the

Social Sciences and Humanities Research Council of Canada.
 Competition in the Nonprofit Sector:
A Strategic Marketing Framework

ABSTRACT

The longstanding tradition of cooperation in the not-for-profit sector is facing powerful pressures
that are driving it toward greater competition. Although this trend is most obvious in fundraising
and volunteer recruitment activities, it has also led to competition for clients, thereby producing
important and largely unappreciated changes in the way nonprofit organizations deliver their
services. Existing business models of competition provide useful insights, but do not fully
capture the distinctive characteristics of not-for-profit organizations. We propose a new model
that incorporates these considerations in order to enhance conceptual understanding and
managerial decision-making. Specifically, we distinguish three broad forms of nonprofit
competition: (1) combative, where rivals have incompatible value systems and behavior is
hostile; (2) collegial, where rivals’ objectives differ modestly and collaboration is widespread,
and; (3) alternative, where rivals pursue different approaches to the same problem, and behavior
is neither antagonistic nor cooperative. Our model also identifies four categories of forces that
are seen to shape the nature and intensity of competition: social forces, product forces, audience
forces and internal forces. Implications for managers and researchers are discussed.

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INTRODUCTION

At first glance, the notion of “nonprofit competition” seems a curious contradiction in terms:
While each nonprofit organization has its own unique mission, all share the same basic goal of
improving the human condition. Given this, it seems reasonable to expect them to develop
primarily collaborative relationships. But while this may have been true several decades ago, it
is rarely the case today. Rapid expansion of the nonprofit sector has greatly outpaced growth of
the donor base, and this has forced many players to compete aggressively for funding and
volunteers. Moreover, differing visions as to which social goals should receive priority, and
which approaches should be used, have moved nonprofit competition beyond its fundraising
origins into competition for clients. This has had a monumental impact on the way in which
nonprofits conduct their business, and it is producing important new challenges for managers.

The emergence of competition for clients in the nonprofit sector is particularly remarkable
because these organizations have historically operated in domains serviced by few providers.
Indeed, the nonprofit form was itself conceived to meet needs that were either poorly served or
not served at all: things like supporting the underprivileged, building hospitals in communities
that lacked them, and preserving and displaying cultural artifacts. Yet today, people in need of
charitable services can choose from a variety of nonprofit service providers. Most modern cities,
for instance, are home to a variety of programs that seek to celebrate art and culture, support
troubled youth, or convince people to behave in a more socially desirable manner. Each one of
these organizations has its own mission, its own priorities, and its own operational approach.

This paper examines the causes, shapers and consequences of nonprofit competition, focusing
especially on issues associated with the competitive delivery of services to clients. We treat
competition for resources (i.e. funds and volunteers) more peripherally because it is more
established and relatively well understood. Our conceptual framework draws extensively on
existing business and economic literature on competition but, importantly, is firmly grounded in
the nonprofit experience (see Andreasen 1995). As we will demonstrate, not-for-profit
organizations possess important characteristics that distinguish them from private businesses,
giving rise to a very different kind of competitive environment that must be studied and
understood in its own right.

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We begin by considering the nature of modern-day interactions among nonprofits and exploring
the factors that drive them to collaborate or compete in the delivery of services. Next, we review
a leading conceptualization of business competition and demonstrate its inadequacy for the
nonprofit case. We then develop a new model to describe competition as it occurs in the
not-for-profit sector, identifying forces that influence the organization’s competitive position in
product-markets and the nature of competition in these markets. Finally, we discuss the strategic
challenges facing organizations that must cope with service competition, demonstrating how
insights from our model can help to improve the quality of managerial decision-making.
Implications and directions for future research are also addressed.

UNDERSTANDING NONPROFIT COMPETITION

Before proceeding further, it is helpful to explain what we mean by competition in the context of
this paper. Despite its perfunctory use in everyday language, the meaning of the term remains
imprecise and setting-dependent. Jain (2000, p. 73) has even argued that it “defies definition
because the view of competition held by different groups (e.g., lawyers, economists, government
officials and businesspeople) varies.”

Notwithstanding these differences of perspective, competition can be broadly characterized as a

rivalry for scarce resources and thus as the joint product of interdependence and conflict of
interest (Moorthy 1985). For profit-driven firms the scarce resource is typically consumers’
money; for nonprofit organizations it may also include their time, energy and attention. Among
nonprofits, competition arises when the organization’s success depends on the behavior of
groups that advocate a related cause but favor different solutions, priorities, or approaches.
Since interest in similar issues makes interaction inevitable, the nonprofit faces pressure to
respond. This response can range from relatively minor adjustments (changes in pricing and
promotion) to more radical actions (targeting different customers, offering different services, or
embracing new technologies and internal processes). It may even alter relationships with
suppliers, strategic allies and other key partners.

If the nonprofit’s mission involves promoting socially desirable behavior (such as responsible
drinking, or safer sex), it will also face indirect competition from a much broader range of

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organizations. This is a consequence of two important features of social marketing. First,
prosocial behavior is often motivated by a general need to “do good” rather than a desire to
achieve something specific. And second, people possess finite time and energy, limiting the
number of causes they are willing and able to adopt. As a result, very different behaviors may
become substitutes and energies devoted to new prosocial activities may be drawn away from
other worthy causes (Kotler & Zaltman 1971).1 For example, a recycling group may find it wise
to develop a message that stands out not only from other environmental ads, but also from other
kinds of social advertising campaigns.

Whether direct or indirect, nonprofit sector competition can therefore be understood as a

mechanism that drives organizations to consider the behavior of rivals when setting strategy.
This perspective differs from the private sector view in that it does not presuppose hostility as a
necessary consequence of divergent, mutually dependent interests. The distinction is important
because many nonprofits are reluctant to acknowledge that rivalries even exist, and thus avoid
open confrontation when they interact. Moreover, nonprofit competition has special features that
traditional definitions fail to capture.

In particular, competition among nonprofits is not necessarily a zero sum game, but something
that can generate net benefits for both the incumbent and new entrants. One reason is that each
nonprofit defines success in a different way and measures it with different criteria, so one
organization does not have to lose for another to win. Another is that growth in the number of
nonprofit players can lead to expansion of primary demand – first because added promotional
effort further reduces client apathy and fear, and second because causes championed by multiple
organizations tend to be seen as more legitimate and important. Finally, the availability of
multiple solutions can serve to bolster public enthusiasm for issues where a single approach
would falter. This is especially relevant for behavior change problems such as drunk driving,
where people need to “make a habit” of acting responsibly or risk reverting to former tendencies.

NONPROFIT GROWTH LEADS TO MORE INTERACTION

The relatively recent arrival of services competition on the nonprofit scene, after such a lengthy
period of essentially cooperative relationships, leads one naturally to ask two related questions:

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“why” and “why now.” One key factor has been an increase in interaction among nonprofit
organizations over the past several decades, caused by remarkable growth in their number and
size. Between 1981 and 1997, the total number of charitable agencies registered with the U.S.
Internal Revenue Service grew at an average annual rate of 4.8 per cent, rising from 327,758 to
692,524 (see Figure 1).

[INSERT FIGURE 1 ABOUT HERE]

While some of this growth can be attributed to population growth, the nonprofit sector has
expanded at a much faster rate than has the population. There are at least four reasons for this:
(1) nonprofits are increasingly recognized as an effective organizational form for meeting social
needs; (2) entrepreneurial people are being attracted to nonprofit organizations in growing
numbers; (3) new technologies create opportunities for new nonprofit organizations to meet
needs in innovative ways, and; (4) public sector streamlining has shifted responsibility for
providing some social services to the nonprofit sector; (see Table 1).

[INSERT TABLE 1 ABOUT HERE]

The net result of these trends is that today’s nonprofits interact more often and in more
substantial ways than those of the past. In doing so they face some forces that encourage them to
collaborate and others that push them to behave as adversaries. Next, we consider the impact of
these forces on the way nonprofits deliver their services.2

INTERACTION IN SERVICE DELIVERY

Nonprofits have traditionally provided services that private and public sector organizations were
unable or unwilling to offer. And with relatively few such organizations in existence up to the
latter part of the 20th century, there was ample opportunity to select a unique niche in which to do
good. Interaction among nonprofits was minimal and, where it existed, was essentially
collaborative. Several factors encouraged nonprofits to cooperate when delivering their services.

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In the private sector, economic theory and empirical evidence have shown that competition
drives firms to better address the needs of their customers. But nonprofits are believed to serve
the public interest as a matter of course, and so are often encouraged to collaborate (Steinberg
1987). This perception stems partly from the fact that social goals are seen to be more
benevolent than profit-maximization. In addition, many nonprofits provide services whose
quality is difficult to judge, and the faith people develop as clients often evolves into a general
sense of trust toward the organization. Finally, nonprofits have historically served as satisfiers of
important unmet social needs, such as caring for the sick, educating orphans, or feeding the poor.
Due to the magnitude of these problems and the limited resources available to deal with them,
the public demands that nonprofits reduce duplication and wastefulness by working together.

There are also operational factors driving nonprofit organizations to cooperate. Since nonprofits
exist to “do good,” they find it difficult to turn away clients who fall outside their target market.
Handing these people over to other providers, while accepting others in return, allows the
nonprofit to specialize while ensuring that needs do not go unmet. Suicide prevention lines, for
instance, often partner with child abuse organizations, marriage counselors and career planners in
order to focus on their core business: saving human lives at the moment of crisis.

Drivers of Competition in Service Delivery

Despite these incentives for cooperation, the delivery of nonprofit services has seen a marked
rise in competition in recent years. This trend has been simultaneously propelled by consumers,
managerial style, and external factors (see Table 2).

[INSERT TABLE 2 ABOUT HERE]

Around the world, increasingly heterogeneous populations have resulted in more diverse
consumer needs. Although a single organization could theoretically attempt to satisfy all
segments, particular groups are often served by smaller organizations that feel they know the
client better.3 This has attracted more players, but overlapping segmentation criteria mean they
are often targeting the same clients. Nonprofit organizations are also facing pressure to broaden
their service offering to enhance convenience for clients. This has led to competition among
organizations whose core activities are very different, and who would not previously have been

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rivals. Finally, many nonprofit services involve appeals for prosocial behavior change. As the
popularity of social marketing has grown, so have demands on the limited amount of time and
attention consumers make available for “self-improvement” (Andreasen 1995).

Competition among nonprofits is further encouraged by changes in the way organizations are
managed. For one thing, the not-for-profit sector has paralleled other kinds of organizations in
witnessing a rising entrepreneurial sprit, and a growing drive to excel relative to contemporaries
(Young 1983, Graves 1995, Rao 1998). It is also beginning to embrace a more performance-
driven approach to management, as boardroom demands for accountability force organizations to
clearly define objectives and strive for specific targets (Drucker 1989, Porter and Kramer 1999).
To a large extent, this is a by-product of the changing nature of fund raising: decades ago, people
gave to organizations that were good; today, they donate to organizations that do good. The
resulting competition for funds has produced managers that are able and willing to compete for
clients (for examples, see Fenn 1995).

Finally, nonprofit competition is being driven by external forces, chief among them the
withdrawal of public sector funding over the past decade and a half (Angelica & Hyman 1997).
Attracting clients has become essential because of the appeal that high usage has for both
government funding agencies and private benefactors. Another factor is the increasingly blurry
line between the activities of nonprofits and those of private industry. On the one hand, firms
such as Disney’s Animal Kingdom are encroaching on historically nonprofit domains. On the
other, nonprofits are expanding into traditional business arenas, as museum-run art shops set up
in shopping malls. Finally, with the rise of global trade there is a growing perception that
geographic constraints are no longer insurmountable. Many business schools, for instance, now
offer MBA programs in international locations, thousands of miles from their main campuses.

MODELING COMPETITION

Nonprofits are not simply businesses that choose not to make money, but a unique form of
organization with distinct goals and challenges (Drucker 1990, Lovelock & Weinberg 1989,
Voss & Voss 2000). The sector is characterized by features that, together, make competition in
this sector a very different phenomenon from that experienced by private firms.

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Mission Dominates Profit

Most obviously, nonprofits have a bottom line that is social, not financial. Their yardstick of
success is public progress rather than private profit. As a result, they may be at least partly
satisfied to see their mission achieved by a rival organization, so long as it is achieved. Groups
that advocate electric cars to reduce air pollution, for instance, would not be wholly displeased if
their goals were achieved via zero-emission fuel cells rather than electricity. This is very
different from the private sector, where companies like Atari derive little satisfaction from the
massive success of the video game industry because they did not share in its success.4

Because of the primacy of mission over profit, nonprofit organizations also face moral issues that
the private sector does not have to contend with. Although each nonprofit addresses a particular
set of needs, more fundamentally they all serve the good of society. To improve conditions for
one group, while significantly harming another, is therefore unacceptable. In contrast, private
firms need not worry about the damage their actions do to rivals because (1) their goal is to serve
primarily their own interests rather than the public good, and because (2) damage to competitors
typically harms competing private interests rather than some other form of public good.

Nonprofits Serve Multiple Publics

In contrast with commercial businesses, where the key audience consists of customers,
nonprofits must pay attention to at least four key publics: clients, donors, government and
volunteers (see Figure 2). This makes competition more complex because the organization must
balance many different interests when determining competitive strategy (Ritchie et al. 1999).

[INSERT FIGURE 2 ABOUT HERE]

In the private sector, firms typically develop products that people are keen to pay for, then adopt
strategies to attract as many customers as possible. For nonprofits, product-market selection and
other marketing mix decisions must also reflect the priorities of stakeholders who contribute time
and money to the cause. For example, a career counseling service supported by local immigrant
groups might focus on clients that have recently arrived from a foreign country, even if the
service would appeal to a broader audience.

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Donors, government and volunteers also tend to have a different time horizon from that of
clients. While consumers are driven to satisfy immediate needs and wants, other stakeholders
are usually motivated to resolve some long-term societal problem. These interests must be
balanced, leading to service offerings that can lack the immediate appeal of many private sector
products. For instance, urban youth programs often oblige teens to give up drugs before
enrolling. This represents a serious disincentive for prospective clients, who are attracted mainly
by the promise of food and shelter. But donors and volunteers may insist upon it, since this
serves their ultimate goal of rehabilitating children into productive members of society.

Trust is Key

Because of the nature of nonprofit offerings, and of the people who consume them, trust plays an
especially key role in determining whether a prospective client will deal with a specific nonprofit
agency (Arrow 1963, Hansmann 1980, Weisbrod 1988).5 While a large proportion of private
sector output is in the form of goods, nonprofits overwhelmingly produce services, whose quality
is more difficult to judge. Many nonprofits also cater to highly sensitive and personal needs–
such as rape counseling or summer camps for disabled children–and this raises the stakes of
failure. Moreover, a disproportionate number of nonprofit services are consumed by people who
are vulnerable, unable to judge quality for themselves, and dependent on third-party decision-
makers who do not actually experience the service (Krashinsky 1986). As a result, it is difficult
to ensure that clients are getting what they paid for. Trust helps overcome these problems, and
the time and effort needed to build it represents an important barrier to entry.

Nature of Costs and Benefits

Finally, services provided by nonprofits tend to have different cost-benefit considerations from
those of the private-sector. For one thing, the price is usually more psychological and less
financial (Kotler & Zaltman 1971). Adopting healthy living practices, for instance, requires that
an individual summon the discipline to exercise regularly, eat fewer fatty foods and quit
smoking. In comparison, the cash outlay for a gym membership, low-fat food and nicotine
patches seems rather small. On the benefits side, businesses tend to sell things where the payoff
is immediate, enjoyed by the individual making the purchase, and directly associated with a
positive outcome. But the rewards for buying products offered by nonprofits often come years
later, accrue to others, and involve minimizing the risk of some possible negative outcome.

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There are exceptions to this rule, of course: performing arts groups and museums offer services
that are enjoyed immediately and personally. Yet even here, part of the “product” is a gradual
awakening of one’s appreciation for art and culture, which the provider hopes will inspire others.

PORTER’S FIVE FORCES MODEL

There are, of course, a number of well-known models of competition, developed for the business
sector. None has been more influential than Porter’s (1979) Five Forces model for predicting
industry profitability. While it is not our intention to review that work in detail, the essence of
Porter’s idea is that the competitive intensity of a product-market is determined by five broad
influences: (1) threat of new entrants; (2) bargaining power of customers; (3) bargaining power
of suppliers; (4) threat of substitute products or services, and; (5) jockeying for position among
current competitors (Porter 1979). As competitive intensity increases, industry profitability is
presumed to decline. It is thus the firm’s task to find a position within its industry from which it
can defend itself against these forces or, alternatively, to shift the balance of power in its favor.

Attempts have been made to apply the Five Forces model to the nonprofit sector (e.g. Tuckman
1998, Boehm 1996), demonstrating how these forces can also influence competition among these
organizations. For instance:

• The high capital investment needed to establish a product testing lab has discouraged
potential entrants from competing with Consumer’s Union (publisher of Consumer Reports).
• The emergence of large, institutional buyers of health services in the United States has
increased pressure on nonprofit hospitals to alter their programming in response to the
demands of these new buyers.
• Dependence on food from a small number of western governments and agricultural
cooperatives has made the international aid sector highly competitive.
• Availability of low-cost counseling from religious organizations prevents other mental health
providers from raising their prices beyond a certain level.
• Intense rivalry between pro-life and pro-choice groups in the abortion debate has led to
heated efforts to ensure that clients are not lost to the other side.

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While these observations show that the Porter model can be applied to nonprofit competition,
they do not imply that it is the best way to understand it. Porter’s model does not (and was never
intended to) reflect a number of critical factors imposed by the not-for-profit environment. For
instance, the bargaining power of suppliers is less important for nonprofits than for businesses;
conversely, issues that are uniquely important in the nonprofit sector, like societal expectations,
have been excluded. In light of these concerns, coupled with the fact that nonprofits call upon
competitive strategy to achieve something other than profitability, seeking insights from existing
models should be seen as only a first step. Ultimately, what is needed is a new approach to
competitive strategy designed specifically for nonprofit organizations.

A MODEL OF NONPROFIT COMPETITION

With this in mind, we developed a model that is firmly grounded in the nonprofit experience.
Our model identifies: (1) the various forms that nonprofit competition can take, and; (2) basic
internal and external forces that influence which competitive form will predominate, and how
intense that competition will be. We define “intensity” here as a product of the number of
interactions between the nonprofit and other organizations within a particular domain, and the
extent to which these relationships are characterized by divergent rather than shared interests.

Our model provides an indication of the competitive environment in which the nonprofit
organization is likely to find itself, but does not account for special historical circumstances that
can create unusual outcomes. For instance, sudden government privatization of a sector can
create competitive circumstances that are quite different from those our model would predict,
involving a very different number of players and a different propensity to cooperate or confront.

We take the internal characteristics of the nonprofit organization as given, but note that
organizations have some ability to choose the product-markets in which they operate, provided
this reflects the objectives of key stakeholders. Visually in our model, this means that nonprofits
have the power to choose the “sheath” of social, audience and product forces that surround them,
prior to being subjected to their influence. Just as firms can shift their focus away from product-
markets that are deemed undesirable (as Nortel Networks has done in transforming itself from a
telephone equipment manufacturer to a network solutions provider), nonprofits also have latitude

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to redefine themselves over time. One prominent example is Chrysalis, an agency based in Los
Angeles County, California, founded in 1984 to distribute food and clothing to the homeless
(Drucker et al. 1998). Soon after, the organization decided that a different approach was needed,
and changed its focus to finding jobs for the homeless. In 1995, mission shifted once again, and
today Chrysalis helps the homeless and very poor to become self-sufficient through life skills
training. These represented deliberate decisions to alter the client base, the product offering and
the social norms faced, thereby changing the nature of the competitive environment.

TYPES OF NONPROFIT COMPETITION

Our model begins by identifying and describing the different forms of nonprofit competition.
We identify three main types, describing three distinct styles of relationship that have been found
to exist between organizations: (1) collegial competition; (2) combative competition, and; (3)
alternative competition (see Table 3 and Figure 3). Which type of competition is encountered
will depend first on the degree to which the nonprofit organization faces incentives for
cooperation or conflict. If pressure to act cooperatively predominates, the organization is likely
to adopt a helpful behavioral style and engage in essentially collegial competition. If pressure
for conflict is strongest, the organization will vigorously impede the efforts of rivals and engage
in combative competition. If neither of these pressures is especially strong, interaction will tend
to be driven by the fact that different organizations differ in their views on how best to solve the
needs of clients, leading to a variety of approaches. We refer to this as alternative competition.
All three forms are described in detail in the next section.

[INSERT FIGURE 3 ABOUT HERE]

As a brief but important side note, it should be noted that we do not presume that nonprofit’s
dealings with all other organizations are necessarily of the same kind. Rather, “type of
competition” as used here refers to the predominant form of relationship that exists between the
nonprofit organization of interest and those with which it interacts regularly.

[INSERT TABLE 3 ABOUT HERE]

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1. Combative Competition

Combative competition is an aggressive, often hostile environment in which nonprofits compete

head-to-head to maximize their share of the client market. Organizations behave in a hostile and
confrontational manner despite – and often because of – the fact that this approach hurts the
fortunes of other nonprofits working on a particular issue. In short, this is the situation most akin
to competition as it exists in the private sector.

In the most extreme cases of combative competition, rival organizations hold entirely different
definitions of what constitutes “social good,” making it impossible to achieve multiple missions
simultaneously. When competition is based on this kind of clash of personal values, it generates
tremendous pressure to triumph at the expense of one’s rivals. A good example is the public
battle between the National Rifle Association and groups working to ban handguns in the United
States, which stems from the very difficult tradeoff between individual freedom and societal
needs. At other times, the value systems may not actually be in conflict, but the choice to
support one organization may effectively preclude support for the others. For instance, most
people support the notion that animal species should be preserved and protected, but a fierce
rivalry exists between those who believe zoos should play an active breeding and public
education role, and those who maintain that true preservation exists only when animals are
allowed to succeed in their natural environment.

Cooperation is not out of the question in situations of combative competition, but commonly
occurs only among groups that line up on the same side of an issue. (For example, coalitions
have emerged both for and against the freedom to choose to have an abortion.) It is the
relationships between alliances that are acrimonious and subject to intense competitive behavior.
Worth noting is the fact that many such coalitions are temporary and issue specific, and may be
undone if circumstances change in a way that affects the interests of at least one of the partners.

2. Collegial Competition

Collegial competition is a relatively gentle form of competitive interaction characterized by

widespread sharing of knowledge, personnel and resources. It results when the incentive to
cooperate is strong. Organizations concern themselves primarily with providing quality service

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to as many clients as possible, and worry less about losing “business” to others. Even so, each
nonprofit sees its contribution as uniquely valuable and worthy of preservation. Competition
thus occurs in the sense that organizations strive to serve as much of the market as possible, in
numbers that are at least sufficient to ensure their own survival.

Collegial competition occurs most commonly when the following conditions apply: (1) there is
broad consensus as to what the problem is and how it should be solved; (2) the need involves
fundamental issues of life and death, and; (3) demand for services is acute and overwhelming,
meaning that the supply of potential “clients” is essentially unlimited. The result is a powerful
social expectation that service agencies will focus on “getting the job done” rather than worrying
about the success of a particular organization or approach. Such is the case with epidemics in
developing countries, where the problem is massive and life threatening and the priority is to
contain the disease. Organizations band together to identify and treat the infected, while
educating and inoculating the healthy. Differences of opinion exist regarding which geographic
areas should receive priority and whether health education should occur in a religious or secular
context, but these are generally subordinated to the greater goal of stopping the spread of disease.

While collegial competition typically occurs in situations where clients’ needs are urgent, this is
not always the case. Improving childhood nutrition is a challenge that demands a long-term
solution, but it too leads to collegial competition. Here, the pressure to cooperate stems not so
much from a sense of urgency as it does from the recognition that concerted effort is needed to
address the problem effectively. To mature into healthy adults, children must eat nutritious
meals containing all of the food groups (not just some), they must do so regularly (not just
occasionally), and this must continue for their entire childhood (not merely during the primary
school years). While organizations may specialize in promoting certain types of wholesome
foods, in certain settings, to children of a particular age, cooperation is essential to the realization
of everyone’s broader goal of ensuring that young people are well nourished.

In extreme cases of collegial competition among very like-minded organizations, pressure to

cooperate may be sufficiently powerful that rivals may be driven to consolidate. This is rare in
practice, however, because the underlying interests of different groups and their constituencies

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are usually distinct enough to prevent this from occurring. Also, many nonprofits achieve their
mission through multiple lines of business. Since their work on a particular issue represents only
part of a larger picture, amalgamation with rivals from a particular domain is usually impractical.

3. Alternative Competition

The third form of competition, which we label alternative competition, occurs in the absence of
strong pressures for cooperation or conflict or, more rarely, when these two opposing pressures
are in balance. It is the usual result when organizations agree on what constitutes the problem,
but disagree on the best solution. Under these circumstances, the nonprofit organization lacks a
compelling reason to behave in a strictly combative or collegial manner, and is instead driven by
the desire of its stakeholders to provide clients with a solution that reflects their own personal
vision of how to deal with the problem. In some cases this vision is driven by a sense that there
is a “better” way to do things that has previously been overlooked; in other cases, it is simply a
reflection of the fact that different solutions are possible.

Four kinds of alternative competition exist, differing according to the basis for the alternative
offerings. The first two arise from characteristics inherent in the market, while the latter two are
the result of characteristics inherent to the organization:

(a) Variety-Based

Variety-based alternative competition develops when there is no single best way to serve the
needs of the individual. This can occur for three reasons: First, it is almost always impossible to
realize broad social goals via a single mechanism, so various “products” must be designed that
each make partial contributions (Kotler & Zaltman 1971). The problem of domestic violence,
for example, is tackled with public education campaigns, counseling services and legal remedies.
Second, people may tire quickly of particular solutions, and variety provides an opportunity to
address their needs using an approach that will hold their interest (Faison 1977, Hirschman
1980). A good example is physical fitness, where public health programs urge people to choose
from a menu of healthy activities that includes running, walking, hiking, and various sports.
Third, people may have a preference for particular solutions under specific usage situations
(Dickson 1982, Gehrt & Pinto 1991). Here, variety ensures that the preferred option is available

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for each circumstance. For instance, casual drinkers often use a designated driver when out with
friends, hire a taxi when going to parties, but abstain from alcohol when out with family.

When variety is important, several different nonprofit competitors will tend to emerge, each
specializing in a particular type of service, mode of delivery and so on. Individual organizations
then act as independent agents, encouraging as many clients as possible to adopt their solution.
The overall effect is to provide the target audience with a range of alternatives, thus ensuring that
an appealing option is available to them under all circumstances.

The key point here is not that variety-seeking behavior is confined to situations where products
are offered by the nonprofit sector, but rather that the consequences are very different when they
are. Since the alternatives offered in variety-based competition are close substitutes, profit-
driven firms must be very concerned with protecting market share. Consequently, they are likely
to directly encourage consumers to choose their brand, or to spend more time in situations that
are conducive to consumption of that brand. The priority of nonprofit organizations, by contrast,
is usually to solve the broader problem, and thus to increase primary demand. This implies
behavior that, while competitive, will tend to focus on attracting new clients to the service rather
than on convincing them to switch between brand alternatives.

(b) Preference–Based

Different people have different needs, meaning that a good solution for some may not be good
for others. As a result, nonprofits often design their services for a particular target market. But
because markets can be segmented in different ways, individuals may find themselves targeted
by several different providers at once. When this occurs, they must choose the service that best
meets their personal needs and tastes. We refer to this as preference-based competition.

Sometimes, individuals differ according to the quality and comprehensiveness of the service they
are willing to pay for. For instance, some parents consider it necessary that their child be
watched closely while in daycare, and demand that workers provide constant opportunity for
interaction and learning. While other parents would welcome this level of service, they are
unwilling to pay more for it because they do not see it as essential or simply cannot afford it.

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This creates an opportunity for vertical differentiation, where service providers offer comparable
types of service, but at various levels of quality for different prices.

People can also differ in terms of the nature of services they desire. Because of their distinct
cultural and religious values, Jewish parents might want a different kind of daycare for their
child than would Catholic or Muslim parents. This leads to a phenomenon known as horizontal
differentiation, where providers tailor their service to the unique tastes of a particular audience.
In our child care example, for instance, the Jewish daycare might provide kosher food, teach
basic Hebrew, sing Jewish songs and observe Jewish holidays, as well as exposing the children
to classmates from the same cultural community. Other providers would offer comparably
customized services to families of other faiths.

There are many ways for this horizontal differentiation to occur: Apart from religion-based
daycare, there are also ethnic-based and neighborhood-based childcare services. Thus an
immigrant family of Indonesian Muslims might take their child to a South Asian cultural center,
a nearby mosque, or a local community association. While price and quality would be important,
as always, the decision would also depend on how relevant they considered religion, ethnicity or
neighborhood in the daycare decision.

In preference-based competition, each nonprofit seeks to attract as many members of its target
segment as possible. But while organizations generally prefer that individuals come to them,
they draw some measure of satisfaction from knowing that people within their segment are
having their needs met, even if it is by a different provider.

(c) Technology-Based

The two forms of alternative competition discussed thus far have been driven primarily by
characteristics inherent to consumer preference. Sometimes, though, the impetus for providing
alternatives comes not from consumers, but from producers.

When more than one technology exists to address an issue, each with its own advantages and
disadvantages, there tends to be disagreement over which approach is best. We label such
situations technology-based competition. For example, parents of a deaf child may seek help

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from a speech and hearing center that advocates cochlear implant surgery and oral training; they
may choose a residential school for the deaf that uses sign language for communication; or they
may opt for a mainstreaming setting which aims to integrate the child into a standard, hearing
classroom. Although all three techniques share the same goal of helping deaf children grow up
to lead meaningful lives, each achieves this through very different means. Under these
conditions, each approach will usually be supported by one or more service providers who
compete to encourage clients to adopt their solution. Typically, these organizations see merit in
alternative approaches, but each believes that the distinctive characteristics of their approach
make it uniquely valuable, and thus the best approach for at least some portion of those in need.

Our example describes a situation in which different technologies are already well entrenched,
but it should be noted that alternative competition may also emerge suddenly. Here, we use the
term “technology” in its most general sense, describing a method of achieving a goal. But its
more familiar definition describes the quick-paced world of scientific application. Advances in
areas such as medicine, genetics research, computers and, most recently, the Internet are creating
new opportunities to meet needs in very different ways, and this also provides an impetus for
technology-based competition. Consider, for instance, that library services once required a vast
network of geographically dispersed brick-and-mortar locations, and a massive inventory of
physical books. Today, these services can be provided online from a single location using a bank
of servers, creating competition for established providers.

(d) Directional

The fourth and final form of alternative competition–directional competition–is qualitatively

different from the three discussed thus far. Rather than being driven by the existence of discrete
alternatives, it flows instead from disagreement regarding the appropriate balance between
ideology and practicality, and hence the nature of the optimal solution. This is the situation in
ecological management, where nonprofits working to protect the natural environment must
decide how much to collaborate with industry. On the one hand, the Nature Conservancy
discreetly protects key habitats by purchasing land, and works closely with companies when they
feel it serves their interests. On the other, Greenpeace has adopted a “zero tolerance” approach
to harmful development, and has shown itself willing to publicly confront government and
industry (Osterland 1994). Where the Nature Conservancy conceives of the environmental

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problem as essentially poor management of natural habitat, Greenpeace sees it as symptomatic of
something deeper: a misguided society that views nature as a resource to be exploited.

The most interesting aspect of directional competition is that organizations sitting at the more
“pragmatic” end of the scale are often willing to lose supporters to agencies that seek the same
end through stricter or more restrictive techniques. By the same token, however, they work hard
to avoid losing clients to organizations they see as less ideologically pure. In a sense, then,
directional competition is a hybrid between collegial and combative behavior. The Nature
Conservancy, for instance, would be relatively content if individuals decided to live an
ecologically ascetic lifestyle and opposed development in pristine areas. On the other hand,
Greenpeace would likely be little pleased if its supporters chose to back a Nature Conservancy
initiative to share management of a sensitive forest area with a logging company.

SHAPERS OF COMPETITION: FOUR FORCES

Having described the different forms that nonprofit competition can take, the next task is to
identify the forces that determine the nature and intensity of competition. A nonprofit’s
competitive environment is driven both by its own internal characteristics, and by external forces
that exist in the environment and to which it must respond. These can be divided into four broad
categories: (1) social, (2) product-based, (3) audience-based, and (4) forces internal to the
organization. Which of these exert the most influence on will vary from situation to situation.

It should be noted that while environmental factors impose certain baseline conditions, the
organization also exerts considerable control over its own destiny. On the one hand it can adapt
to environmental conditions by changing its own behavior. On the other, it can chart a more
proactive course by tilting the balance of forces it confronts. Thus, a nonprofit facing combative
competition may respond simply by “playing the game” and behaving more aggressively.
Alternatively, it can take steps to alter its relationships with rivals, or even shift its focus to a
product-market served by less hostile players.

In the nonprofit sector, the competitive environment is best viewed as a fusion of two different
but related components: competition to attract resources, and competition to attract clients. The

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former encompasses the fundraising and volunteer recruitment activities of nonprofits, while the
latter relates to the delivery of services. Each competitive domain influences the other (often
heavily) but they do not move in lockstep, so a nonprofit can occasionally find itself facing
strong competitive pressures in resource attraction but weak competition in the delivery of its
services. The reverse scenario–in which competition for resources is low but competition for
clients is high–is also possible, but less common.

While competition is influenced by many of the same forces whether for resources or clients,
each represents a unique phenomenon that needs to be considered separately. Since the focus of
this paper is on competitive service delivery, we outline the considerations that shape the nature
of competition for clients (see Figure 4).

[INSERT FIGURE 4 ABOUT HERE]

1. Social Forces

Broadly speaking, social forces consist of the public’s expectations about how nonprofit
organizations ought to act. Most are informal conventions that must be inferred from behavior,
but some are codified in government legislation or in written standards adopted by not-for-profit
associations. While diverse, they can be grouped into five major types:

(a) Social norms regarding the acceptability of competition

Things such as food, clothing and shelter are basic human needs. When individuals cannot meet
these needs on their own, society favors cooperation, rather than competition, among nonprofit
organizations that seek to help (see Table 4). Reasons for this range from the moral to the
practical. First, the sheer enormity of responding to basic needs makes it difficult for individual
organizations to succeed on their own. Since resource sharing overcomes many of these
problems, cooperation becomes an attractive option. Second, a key part of competition’s appeal
is that it can produce a wider range of solutions, tailored to individual needs. Yet the life and
death implications of starvation and malady make it more important to simply satisfy clients (by
keeping them alive) than to provide an optimal solution. Third, many people associate
competition with self-interest, and believe that competing nonprofits will act against the welfare
of those being served. Underlying this is a general distaste for organizations that profit from

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helping those in need, rather than delivering the full benefit to the client. Fourth and finally, the
desire to outperform rivals can occasionally lead to a focus on “winning” rather than problem
resolution. This strikes many as inappropriate, given that the underlying objective is to preserve
human lives and dignity.

A very different situation exists for the fulfillment of higher order needs such as art and artistic
performance. Here, society tends to be very tolerant of competition, and there is a sense that it is
legitimate for people to pursue different visions. This is in large measure because the basic need
is for quality and variety–rather than quantity–so there is little pressure on organizations to
collaborate. In sum, then, services that meet a fundamental, life-or death need are likely to be
delivered cooperatively, while those that serve less essential functions will tend to be associated
with competition.

It is worth noting, however, that societal expectations can change. For example, the focus in
public school education in the United States has for decades been on providing a relatively uniform
education. But in recent years, with the growth of charter schools, competition among alternative
formats is increasingly accepted, if not encouraged. The reasons behind this shift are not entirely
clear, but the impact of competition is likely to be both considerable and controversial.

[INSERT TABLE 4 ABOUT HERE]

(b) Issue divisiveness

If society shares a similar conceptualization of the problem and agrees on the general nature (if
not the details) of a good solution, then the intensity of competition will be relatively weak. On
the other hand, a lack of social consensus will tend to increase competitive pressure. This is true
not only because such divisiveness tends to be reflected in market structure, with organizations
emerging to represent each perspective, but also because supporters of each group demand that
their organization define and defend their point of view.

When the social problem in question is associated with a few, naturally discrete alternatives,
competition may be especially intense because the well-defined structure of the problem lends
legitimacy to each alternative and makes compromise difficult. For instance, the damaging

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health effects of smoking in restaurants have led to calls on government to address the issue.
Possible solutions include: banning smoking outright, permitting smoking only in separate
ventilated rooms, permitting smoking in some categories of restaurants and not others, or
continuing to allow unfettered smoking. In each community where the debate takes place, some
portion of the public tends to converge around each of these positions, leading to the creation of
formal organizations to advocate each solution. When this occurs, ingroup-outgroup prejudices
combine with selective exposure of group members to information favorable to their cause,
leading to hardened stances and vigorous rivalry.

(c) Issue morality and emotionality

Issues that have strong moral and emotional overtones are often associated with a large number
of service organizations and, thus, greater competition. Two key reasons for this are: (a) the
compulsion for action that morality and emotions inspire, and (b) the belief that it is important to
follow one’s convictions when dealing with moral issues. The former results in a powerful need
to resolve the problem, while the latter leads to unwillingness to compromise as people insist on
doing it “their way.”

Typically under such circumstances, the nonprofit perceives its solution as the most effective
one, or simply “the right way to do things.” Consequently, people are unwilling to tolerate
positions that do not closely match their own view, since this would force them to accept
solutions that they perceive as “missing the mark.” Consider, for instance, the highly charged
issue of selling condoms in high schools as a means of reducing the incidence of teenage
pregnancy and sexually transmitted disease. Here, the powerful emotions people have toward
their children, coupled with the inherent morality of sex-related issues, make for an extremely
competitive environment. While some individuals argue for free and easy student access to
condoms, others bitterly oppose it, and still others favor various levels of access. This contrasts
sharply with the atmosphere of compromise associated with more prosaic questions, such as how
to encourage volunteerism among youth.

When morals and emotions are at stake, there is also a tendency for people to start their own,
smaller organizations to implement their positions. This can further intensify competition by
institutionalizing it. The end product is a multitude of agencies offering services to the same

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group of clients, producing a highly competitive environment in which agencies work vigorously
to bring about change – each doing so in their own way, and each proceeding with the conviction
that their approach is best.

(d) Legislative and regulatory factors

As in the private sector, jurisdictions may enact laws that prevent concentration of nonprofit
service or policy-setting control in the hands of a few providers (Steinberg 1993). In the early
1990s, for instance, the United States Department of Justice investigated a group of elite
American universities for meeting jointly to set common financial aid packages for accepted
students. Subsequent regulation brought an end to the practice, with the full impact of the
judgment still being studied (Netz 2000). Alternatively, regulations may mandate a monopoly,
such as the United Way’s exclusive right to collect donations by payroll deduction in the United
States up until the 1970s. Such laws and regulations have direct effects on the number of
players, and the nature of competition.

(e) Public awareness and understanding of issue

For any given issue, the public’s level of awareness and understanding will act as a moderator of
the effects of other social forces affecting competition. When members of the public know and
understand an issue, they become confident in their views and more likely to influence the
competitive landscape that surrounds it. Thus, when issue awareness and understanding are
high, homogeneous public opinion will tend to attenuate competitive pressures and encourage
cooperative solutions, while fragmented public opinion will lead to a hardening of views and
heightened competitive intensity. Conversely, low awareness and understanding will tend to
minimize the impact of social forces (see Figure 5).6

[INSERT FIGURE 5 ABOUT HERE]

2. Product Forces

Product forces are competitive influences based on the characteristics of the services or goods
being provided. They include some considerations common to most marketing situations, as
well as ones unique to the nonprofit environment.

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(a) Potential for service differentiation

Private sector firms that sell commodities face intense “me-too” competition because it seems
easy for rivals to grab a share of the profits by offering similar fare. But when a product can be
differentiated from its competitors, these differences can be conveyed to consumers, and the
basis for differentiation can be sustained over time, the result is a quasi-monopoly. Consumers
hesitate to switch to alternative offerings because they value the unique features of their own
brand, thus insulating the firm from price-based competition.

The situation in the nonprofit sector is very different. Because their success is measured in
social progress rather than money, they have little interest in entering markets that are already
well served even if the potential exists to capture a large portion of the market (Newhouse 1970).
As a result, services that cannot be differentiated tend to be provided by a small number of
organizations, leading to relatively weak competition. Examples range from not-for-profit
waterway clean-up initiatives, to the operation of public libraries, to the collection of blood
donations by volunteer agencies.

On the other hand, the ability to differentiate the product acts as a powerful magnet attracting
nonprofits to a market. Here, the appeal is the opportunity to serve clients better by providing
them with an alternative that more closely reflects their needs. But while profit-maximizing
firms will cease to add new products when the marginal economic benefit of doing so reaches
zero, nonprofits are motivated to continue until they have reached zero marginal social benefit
(as they themselves define it). For this reason, nonprofits will tend to offer a greater number of
differentiated alternatives than firms, and are more willing to cluster around rival offerings even
in the face of price competition. The implications of this are noteworthy and consequential: far
from providing protection from competition, product differentiability actually tends to increase
competitive intensity in industries populated by nonprofit organizations.

(b) Pace of innovation and technological change

Competition intensifies when technology plays an important role in service delivery and the pace
of innovation is high. When new approaches are created that render the old obsolete,
opportunities emerge for new players to enter the market and supplant incumbents. Technology

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can help organizations become more efficient, meet client needs more effectively, or both. The
Internet, for instance, is exerting strong competitive pressure on traditional libraries not only
because of its lower costs, but because paper and ink collections are inherently less accessible.
Technology can also change the nature of the need itself. For example, the rapid evolution of
computer technology has led to fierce competition among organizations that provide job skills
training. Not only does it offer new and more powerful tools with which to train students, it also
redefines the kinds of skills employers demand.

(c) Riskiness of service consumption & level of trust required

Some nonprofits offer services whose quality is self-evident and easy to monitor, and for which
the consequences of failure are low. For instance, American television viewers who are
disappointed in the programming of PBS can simply change the channel, rent a video, or visit the
local library. On the other hand, service quality is often difficult to judge even after
consumption, and the personal nature of many nonprofit services leaves clients especially
vulnerable if the organization does a poor job or breaches their privacy. Such is the case with
things like pregnancy counseling, child abuse treatment or suicide prevention services.

When a high degree of trust is involved, nonprofit organizations have an opportunity to develop
a significant first mover advantage. At the time the service is first introduced, those in need must
place their faith in whatever organization offers it. If all appears to go well and clients suffer no
serious negative consequences, they will become more willing to use that provider in the future.
The longer this string of positive experiences, the greater the confidence that the organization
can be relied upon to deliver quality and provide services with the necessary discretion.
Particularly outstanding service encounters accelerate this trust-building process. Eventually, as
a positive reputation develops, these effects can even affect the behavior of individuals who have
not had direct experience with the organization.

By the same token, subsequent entrants find client recruitment considerably tougher. Because a
proven alternative is now available, clients no longer face the same “us or nothing” decision that
compelled them to place their faith in the original provider. Moreover, they now have an
existing relationship from which they must be lured. Thus, in a market where trust is important,
late entrants face an uphill battle to win over clients. There is an important caveat to this,

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however: If the incumbent betrays an important trust, or consistently falls short of expectations,
clients may abandon it in droves. Out of this vacuum comes a highly competitive environment
in which large numbers of new providers move in to fill the need. This is illustrated by the
growth of new child care agencies in Canada following allegations of sexual abuse by religious-
run orphanages.

(d) Feasibility of selling service

Because of their potential to generate income that can be used to subsidize other activities,
services that can be sold tend to be associated with greater competition and less cooperation
between providers. This is especially true if this can be done at a substantial profit.

The ability to sell depends on two things. First are the physical features of the service, most
notably the ability to avoid “free-rider” problems by restricting benefits to paying customers:
Some products, like cleaner air produced by fewer automobiles on the road, are public goods
whose benefits accrue to all regardless of their contribution to the cost. Second are the moral
issues related to the consequences of denying the benefits to those who cannot or will not pay:
One could certainly charge heroin addicts for drug treatment, for instance, but few would be
willing or able to pay the price. Both these domains tend to have very little competition. In
contrast, nonprofit children’s camps serve individual campers and are able to charge substantial
fees with little fear of public reproach. Not surprisingly, this is also an area where competitive
pressures are intense. Indeed, services with strong revenue-generating potential also tend to
attract competition from for-profit firms–a phenomenon that is receiving attention from
economists and regulatory bodies (Rose-Ackerman 1986, Reuter and Gaskin 1997, Ryan 1999).

(e) Potential for economies of scale and scope in service delivery

Many nonprofit activities, such as AIDS research, library services, and management of blood
donations, benefit from economies of scale. Still others enjoy strong economies of scope:
Universities, for instance, make use of a common administration and physical plant to offer a
range of degree and non-degree educational programs7. In such situations, services are usually
delivered by relatively few providers who may even cooperate with one another to extract the
full benefit of these economies. The result is limited competition. On the other hand, when the

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size and scope of an organization’s activities have little bearing on cost or quality, services will
tend to be provided by a variety of smaller entities, leading to increased competitive pressures.

3. Audience Forces

While social forces are key to determining whether competition will be collegial or combative,
and product forces influence the basis for alternative competition, the impact of audience forces
is quite different: They primarily affect the intensity of competition. As we have noted,
nonprofits must consider the concerns of at least four key publics: clients, donors, volunteers and
government. As a vehicle for the interests of society, the concerns of government are reflected
primarily via the social forces already discussed. But clients, donors and volunteers exert a very
different kind of pressure on the nonprofit organization, which can be labeled audience forces.
Of these, client and donor forces are by far the more powerful.

(a) Client Forces

A nonprofit that relies on a small number of critical clients will face pressure to accommodate
their demands even when this diverges from the priorities of the organization. In contrast, a
nonprofit that serves many different clients, none of whom are individually critical, has greater
opportunity to act strictly in accordance with the priorities of its mission. While there are limits
on the extent to which an organization will accept such compromise, its effect can occasionally be
substantial. Readers familiar with competitive analysis will note the similarity here to Porter’s
conceptualization of customer power. Different, however, are the factors that determine how
critical a client will be. For nonprofits these include (1) criticality to mission, and (2) competing
demand. By criticality to mission, we mean the degree to which mission advancement depends
upon the client’s cooperation: Clients whose behavior seriously helps or hinders the mission will
be pursued more intensely than others. And by competing demand we mean the degree to which
other charitable causes depend upon that same client: Nonprofits must try relatively harder to
secure a client’s cooperation if it is being pursued by many other social causes.

Criticality to Mission. Nonprofit missions usually involve serving those in need (e.g. feeding
the poor) or effecting some kind of behavior change (e.g. encouraging healthy eating). There are
three main reasons why it might be important for a nonprofit to secure the cooperation of a
particular client: the client may represent a large volume of business; it may have special

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symbolic value; or its current behavior may be exceptionally problematic for itself or for others.
We examine each of these reasons in turn.

In business-to-business marketing, the most important customers are those that purchase large
volumes of the firm’s product. This is also true in the nonprofit case, except that the “product” is
typically a service or behavioral change. For example, career counseling agencies strive to win
contracts from government social service departments because this ensures a large and steady
flow of individual customers. Although such organizations generally like to emphasize long-
term career development, the criticality of winning these contracts often drives them to refocus
their efforts on job placement, since politicians prefer the more immediate and tangible payoff.

Symbolic value is a second factor that determines the importance of a client. Convincing doctors
to quit smoking was a key victory for anti-tobacco advocates, even though members of the
medical profession were few in number and less likely than average to smoke. They became a
key target market because of their social status and their role as knowledgeable opinion leaders.
For similar reasons, gaining the support of a world-renowned university would be important for a
group that advocates an unorthodox new approach to teaching. Even if such a university were
small with relatively few students, its endorsement would provide the credibility needed to
convince others.

The third and final consideration influencing client importance is the magnitude of the problem
they pose, either to themselves or to others. For example, a crisis center may choose to focus
most heavily on the needs of individuals who are actively contemplating suicide, rather than
those whose depression is more subdued. And an organization that works to eliminate violence
against women may consider it more important to change the behavior of heavy physical abusers
than that of occasional verbal abusers. These clients represent critical cases, making it especially
important to ensure they are won over.

Competing Demand. Some clients have broader appeal and influence than others and thus face
a greater number of competing influences for their attention. Put simply, they face a greater
number of substitutes for their effort and attention. For instance, automobile manufacturers tend

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to face demands from groups seeking, among other things, safer vehicles, cleaner emissions and
lower fuel consumption. A nonprofit seeking to encourage greater use of recyclable materials by
such companies would have to compete against many other groups for time and attention. On
the other hand, a maker of personal computers would likely face far fewer such demands,
making it easier for the nonprofit to gain an audience.

A similar situation exists when the nonprofit organization provides services, rather than simply
seeking to influence behaviors. Competition tends to be more intense when a client requires
many different kinds of services, because the nonprofit must work to induce both primary
demand and brand choice. For instance, an organization that encourages children to explore the
visual arts by visiting its facilities must not only contend with the marketing efforts of other like-
minded organizations, but also those of groups that promote music, physical fitness, scholastic
achievement, good citizenship and so on. The constraints faced by both children and parents
make their time a limited resource and, due to the number of groups contending for it,
competition is correspondingly intense.

We have noted previously that nonprofits often face pressures toward both conflict and
cooperation, and that it is the strongest force that determines the outcome. It should be
acknowledged, then, that nonprofits can also work together to serve clients with multiple needs.
The difference is society’s perception of the fundamentality of the needs being served. Most
runaway teenagers, for instance, face more than just a homelessness problem, but also
malnutrition, drug dependency, prostitution and a lack of job skills. Addressing only some of
these needs may have tragic results. Under these circumstances, society may be willing to forgo
the benefits of competition in order to avoid the risk of failure in some essential area.

(b) Donor Forces

The nonprofit-donor relationship is similar to a supplier-buyer relationship in the private sector.

As with buyers, a donor group is powerful if it is dominated by a few players, and the nonprofits
with which it deals depend on it for money or expertise. Since most donations consist largely of
cash, nonprofits are, on the surface at least, highly substitutable. When a major corporate or
individual donor decides that the work being done by a charity is inadequate or no longer reflects

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its priorities, it can shift the donation to another organization or spend the money elsewhere. As
a result, powerful donor groups generally cause nonprofits to compete more intensely for clients.

On the other hand, donations often involve a sense of personal involvement as well as money
(Drumwright 1996). Corporate donors, in particular, often find that employees begin to identify
with the company charity, and that their brand image among customers comes to reflect the
charities they support. When the nonprofit has a unique, positive identity, and donors’ image
(either self-image or public image) is closely intertwined with the nonprofit’s identity, the
nonprofit’s power increases and competitive intensity decreases.

Some donor-nonprofit relationships also involve exchanges of skills as well as money. Over
time, donors may develop expertise that allows them to make an especially meaningful
contribution to their nonprofit partner. These skills are often domain specific, and of less value
to other nonprofit organizations. To the extent that a donor’s contribution consists of skills
rather than money, and these skills are tailored to the needs of the nonprofit rather than being
general, the donor will become “locked in.” The result is weaker competitive pressure.

(c) Volunteer Forces

Volunteers are an integral part of any nonprofit organization. Like donors, they provide key
resources that the nonprofit needs to function. But unlike donors, the contribution of any one
volunteer tends to be quite small, and their direct influence on competition relatively limited. On
the other hand, volunteers can exert a strong directive force on the organization’s values and
goals, and hence on its competitive behavior (Tuckman 1998). Volunteers thus represent a key
element in the internal characteristics of the organization, which we examine next.

Internal Forces

Forces internal to the organization include both its philosophical approach to competition, and
strategic considerations pressuring the nonprofit to adopt particular kinds of strategies and
tactics. These make the organization more inclined to compete in certain ways than in others.

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(a) Organizational ideology

Most nonprofit organizations possess a set of general principles, written or unwritten, which
govern how they conduct themselves and how they wish to interact with other organizations.
These may temper competitive tendencies, as with the peace advocacy group whose philosophy
of brotherhood causes its members to spurn confrontation. Alternatively, ideology can incite
competitive spirit, as with the radical environmental group whose “siege mentality” causes
members to view outsiders – including other ecological organizations – as obstacles to
fulfillment of their mission. Ideology directly affects a nonprofit organization’s strategic and
tactical approach, and has indirect effects on mission and objectives, and on the organization’s
willingness to tolerate alternative approaches.

(b) Mission and objectives

Often, an organization’s mission leads naturally to collaborative or competitive relationships.

This plays an important role in shaping strategy and tactics, and thus the competitive or
cooperative character of the organization’s interactions with others. The United Way of America
is a good example. Its mission “to support and serve local United Ways to help increase the
organized capacity of people to care for one another” ensures that cooperation permeates all
aspects of operation. On the other hand, some organizations have missions that are inherently
competitive. Memorial Sloan-Kettering Cancer Center, for instance, promises patients “The best
cancer care. Anywhere” and has a mission to provide “leadership in the prevention, treatment,
and cure of cancer through excellence, vision, and cost-effectiveness in patient care, outreach
programs, research, and education.” This drive to be the world’s top cancer facility firmly
establishes it as a rival, rather than a collaborator, for other institutions in the field.

(c) Tolerance of alternative approaches

Some organizations feel their approach is the single best way to resolve the problem. Others
believe there are many solutions, and that the optimal answer depends on the needs of the
individual. The first organization will tend to be confrontational and in conflict with other
organizations. The second will favor more gentle competition, since cooperative approaches are
not only possible, but often necessary to provide clients with the required services. For instance,
religious sects that believe theirs is the only true path to enlightenment will tend to be highly
competitive with other faiths (and have occasionally been so to the point of war). In contrast,

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educational institutions generally believe that individuals have unique skills and interests, and so
develop collaborations and exchange programs with other schools to provide students with the
learning experience that best suits them.

(d) Desire for prestige

In some nonprofit domains, prestige is a highly valued and much sought-after commodity.
Museums seek recognition for the quality of their collection or the boldness of their exhibits.
Universities strive for a reputation as an intellectual leader. And hospitals take out newspaper
ads touting their leadership in particular types of care. To some degree this behavior is a means
to an end, since prestige can be a powerful magnet attracting donors and clients. But in many
cases it also reflects the desire of organizational stakeholders to be part of an institution that is
recognized for its excellence. As organizations face pressure to be the best in their field, the
drive for prestige can ultimately lead to competitive behavior in other domains–such as an
increased propensity to compete hard for clients.

SUMMARY AND IMPLICATIONS FOR MANAGERIAL PRACTICE

This paper presents a new conceptual framework to help managers better understand and better
respond to their competitive environment. Our model describes the different kinds of competitive
relationships that can exist between nonprofits, explores their essential features and identifies the
factors that drive the behavior of different players. It does so based on distinctive nonprofit
characteristics, and addresses a number of problems that business-based models of competition
do not consider. In so doing, it provides managers with a number of benefits (see Table 5).

[INSERT TABLE 5 ABOUT HERE]

First, our model equips the nonprofit with a mechanism for making sense of the competitive
environment. By distinguishing three different forms of nonprofit competition, it serves as a
screening device to identify the kind of competition they face. By describing the character of
these competitive forms, it offers insight into the nature of the interactions taking place. And by
specifying the pressures that lead to each type of competition, it provides an explanation of how
and why these relationships evolved as they did. In short, our model helps structure nonprofit
competition into a system that can be explained and understood. In so doing it gives managers a

-31-
better sense of key competitive issues, including the reasons for past success and failure, the
motivations of current rivals, and the likely future outcome of their own competitive behavior.

A second benefit of the model is that it guides formulation of competitive strategy, especially
with regard to the organization’s interactions with rivals. Nonprofits have considerable latitude
to shape the nature of these relationships thanks to the sector’s unique blend of cooperation and
competition (Gallagher and Weinberg 1991). On the one hand, they may choose to adopt a
proactive strategy by taking steps to manage the forces governing competition. If this proves
unworkable, they can take a more adaptive approach, adjusting their behavior to reflect the type
of competition faced. If neither of these options proves satisfying, they also have the option of
refocusing their attention on product-markets where the style of competition is more amenable.
Our model helps managers evaluate the feasibility of these three options by specifying the forces
that govern competition and detailing the means by which they can be influenced. By outlining
the characteristics of the various forms of competition, it also helps them to understand what
kind of competitive relationships they should actually seek.

Third and finally, by exploring the key features of each type of competition, our model helps
organizations develop tactics that facilitate successful implementation of their chosen strategy.
In particular, it provides guidance on what to do, when to do it, and whom to partner with in the
process. For instance, an after-school theater program engaged in variety-based competition
with other youth programs might realize that many interested students are not joining because
their parents require a regular pick-up time for their children. It could then solve the problem by
forming cooperative relationships with its rivals in order to fill out the rest of the school week.
On the other hand, a moderate animal rights group facing directional competition from more
radical counterparts would gain insight into why its constant efforts to form coalitions have
failed. It might then focus instead on garnering public support for its own programs, expecting
competition and being able to prepare for it in advance.

Using the Model: Two Examples

A pair of extended (but disguised) examples help to illustrate how managers will be able to use
the model to improve decision-making.

-32-
The Native Culture Museum

The Native Culture Museum (NCM) is a small but respected university-based institution whose
mission is to investigate, preserve, and present the culture of the American Plains Indian. Long
respected as an authority on native art and history, its extensive collection of artifacts is
considered unrivalled. However, several new developments were raising concerns. The nearby
Metropolitan Museum of History had begun to supplement its core collection with Native
American artifacts brought in from across the Great Plains, while the City Art Gallery had just
announced plans to add a new wing of contemporary Sioux and Cherokee art. Management held
a series of impromptu meetings to discuss these concerns, but in the end emerged confident that
the world-class educational experience offered by the NCM could not be matched. At best, they
concluded, the limited size and quality of the other exhibits would lure away a few curious
tourists. However, they agreed to distribute more brochures and increase the size of their ad in
the local visitor guide as a precautionary measure.

Using our framework, these managers would have understood that competition had become a
genuine force in the marketplace, and that a strategic response was needed. Since there were no
strong social or internal pressures driving rivals to behave in a strictly collaborative or combative
manner, the NCM was facing alternative competition. In many cases, this was preference-based,
since some visitors would be interested specifically in an artistic experience, while others would
want an ethnographic one. In other cases, it was variety-based, as a large percentage of tourists
and other casual visitors would be open to any kind of Native American cultural experience. As
a result, the NCM could expect each of its rivals to focus on a distinctive market, while at the
same time working to attract individuals with a general interest in Native American culture.

While there were many competitive forces at work, a detailed survey of the situation revealed
that organizations were motivated primarily by two considerations: product differentiation and
reliance on major donors. First, each organization had found a way to make its product unique:
the NCM offered a world-class collection of artifacts, the art gallery a chance for visitors to
contrast art from different cultures, and the Metropolitan Museum a diverse product in a
convenient location. Second, each of the rivals had a very different set of donors: funding for the
NCM came from the university, the art gallery’s from the city and individual patrons, and the

-33-
Metropolitan Museum’s from a large endowment. Since there were no major incompatibilities
between the priorities of these donors, and the nonprofit organizations were not fighting over the
same funding base, cooperation was a workable option.

In light of the NCM’s expertise and investment in its collection, refocusing on new product-
markets was not an option. Museum managers thus had two strategic options: They could try to
reshape their competitive environment, or adjust their own behavior to respond to the new
conditions.

The first approach would see them meet with the new rivals and attempt to forge a strategic
partnership, building primary demand by capitalizing on the unique strengths of each
organization. The NCM, for instance, might lend pieces from its collection to the Art Gallery
and the Metropolitan Museum, taking advantage of their location and extended reach. In
exchange, the NCM would receive publicity for its collection, and a system of referral for clients
interested in a richer cultural experience. While this might cause the NCM to lose some visitors,
and detract somewhat from its unique positioning, it might provide better overall service to the
community and breathe new life into its vast storehouse of historic artifacts.

The second approach would see the NCM recognize that it had entered a period of intense
alternative competition, and adapt by developing tactics to promote its unique approach to
presenting American Indian artifacts. This would be advisable if the Art Gallery saw its new
wing as part of a major thrust to attract local visitors and tourists, or as a device for building its
standing in the arts community. Under these conditions, the gallery would likely have little
interest in forming alliances, forcing its rivals to adopt a less cooperative stance.

The NeedleSwap Needle Exchange Program

Founded in 1997, NeedleSwap ran an inner-city needle exchange program in a mid-sized city in
the eastern United States. Dedicated to halting the spread of AIDS among intravenous drug
users, it exchanged used syringes for new, sterile ones in various locations across town.
The organization was the brainchild of Dave Saunders, an AIDS activist who had previously run
the city’s only other needle exchange program, started a year earlier by the Downtown Health

-34-
Clinic under the authority of the municipal health board. Saunders had left to form NeedleSwap
following a debate with the clinic’s director over “philosophical differences”.

While the Downtown Health Clinic required clients to approach a van to exchange their syringes,
NeedleSwap used more aggressive tactics. Rather than waiting for drug users to come to them,
volunteers would walk the streets to seek them out, boldly asking prospects if they had any dirty
needles to exchange. NeedleSwap considered this to be a more effective approach because it
helped to overcome client reluctance to use the service. Unfortunately, it also violated the terms
of the city bylaw under which needle exchanges were allowed to operate, leading to police
harassment. There was also a second important difference between the two programs: While
NeedleSwap originally concentrated solely on needle exchange, the Downtown Health Clinic
supplemented this service with referrals to drug counseling and medical assistance.

NeedleSwap’s controversial style led to frequent clashes with local health authorities, politicians
and community groups: The Catholic Diocese denounced it for failing to help addicts off drugs;
neighborhood groups opposed it for distributing needles on residential streets; and City Council
condemned it for disregarding the rules. In response to public and other pressures, the AIDS
Fundraising Coalition – a key funder – elected not to renew NeedleSwap’s grant. Two months
later, with its finances depleted, the organization was forced to suspend operations.

While there were many reasons for the shutdown of NeedleSwap, a key factor was its failure to
understand its competitive environment. The organization adopted a strategy of confrontation in
an effort to “win” at the expense of the Downtown Health Clinic. But our model makes it clear
that such an approach is appropriate only when organizations have irreconcilable value systems.
Here, the two rivals shared a common goal of saving drug addicts, and differed only in their
perceptions of how this could best be achieved: The clinic wanted to address the underlying drug
addiction, while NeedleSwap felt it was better to focus on harm reduction. At most, then,
NeedleSwap faced a gentle form of directional competition. Under such circumstances, our
model advises implicit cooperation with Downtown Health Clinic, even if that cooperation is not
reciprocated. Addicts willing to consider treatment could be referred to the clinic, freeing
NeedleSwap to focus on the hard-core cases who would otherwise use dirty needles.

-35-
Part of the problem can be attributed to powerful internal forces pushing NeedleSwap to embrace
conflict rather than collaboration. This was due largely to the influence of Dave Saunders,
whose confrontational style led to a gruff dismissal of the Downtown Health Clinic’s approach.
Saunders sought the prestige associated with running the city’s dominant needle exchange
program, and avoided serious attempts at collaboration. Equally important here were the social
forces, which NeedleSwap seemed to neglect. Although needle exchange has the potential to be
a highly divisive issue, the community in this case was surprisingly united: The program had the
support of local citizens and politicians; neighborhood groups protested some of its tactics but
endorsed the strategy; even apparent adversaries such as the Catholic Diocese were not opposed
provided that needle exchange was part of a more comprehensive effort to help addicts stop their
drug abuse. Finally, NeedleSwap failed to understand the power of its donors, and its own
substitutability as a recipient of financial support for AIDS prevention – the Downtown Health
Clinic was not only an acceptable alternative for most funders, but a preferable one.

DIRECTIONS FOR FUTURE RESEARCH

Our framework raises the potential for research in a wide variety of areas. Of these, several
issues would seem to be especially important.

Empirical Studies

First, we have identified a number of phenomena whose effect on competition appears to be

quite different within the nonprofit environment. While we offer logical justification for our
claims, as well as a number of supporting examples, it is important to validate them empirically
across different nonprofit settings.

One of the most important of these is that the potential for service differentiation–long viewed as
the essential mechanism for fending off private sector rivals–actually serves to intensify
competition among nonprofit organizations. Research will need to confirm the assertion that
nonprofits are generally not attracted to product-markets that are already well served. It may be
that this is true only for some forms of competition and some kinds of organizations. If so, one
might expect service differentiation to produce more intense competition under some conditions
and less intense competition under others.

-36-
Our model also implies that ideology and morality merit special consideration in the study of
nonprofit sector competition. These factors seem to have a uniquely powerful impact on
competition for clients, distinct from the spillover effects of resource attraction rivalries.
Consequently, their influence needs to be studied further. We have also suggested that issues
that are predominantly ideological produce either combative or directional competition,
depending upon whether the alternatives are viewed as incompatible to both parties or only one.
This should be confirmed and its implications explored more fully.

Finally, we have noted that trust often plays a central role in the relationship between a nonprofit
and its clients, and argued that this creates a barrier to new entrants. If so, it will be important to
consider how organizations can develop trust when this is critical. Moreover, there is a need to
investigate the advantages of nonprofit status in building trust, and what effects this has in
situations where nonprofits and for-profits compete.

Costs and Benefits of Competition

A second key issue involves the costs and benefits of competition in the nonprofit sector. While
some theoretical work has been done in this area (Tuckman 1998) empirical work has been more
limited.8 Our framework cautions against quick generalizations in either domain, suggesting that
advantages and disadvantages may depend on the form of competition. For instance, it seems
likely that combative and collegial competition would each engender a distinct set of costs and
benefits because organizations compete very differently in the two cases. Similarly, the pros and
cons of competition are likely to differ when rival organizations seek to boost primary demand
(as they might in variety-based competition) rather than influence “brand” choice. The broader
implication here may be that the interplay between cooperation and competition among
nonprofits is a distinctive and uniquely important phenomenon, and that researchers would do
well to pay greater attention to its understanding.

Managerial Mindset

In light of our model, it also seems likely that the type of nonprofit competition could influence
the way managers conceptualize and deal with competitive forces. Research conducted on
private sector firms supports this view. Day and Nedungadi (1994) found that environmental

-37-
and internal factors play a role in shaping managers’ mental representations of competition,
while Clark and Montgomery (1999) demonstrated that managerial experience dealing with
competition affects the choice of criteria used to identify key rivals. Since the three forms of
competition in our model flow from very different internal and external influences, and are
associated with varying degrees of rivalrous behavior, it may be possible to identify distinct
managerial conceptualizations of combative, collegial, and alternative competition. To the
extent that current behavior is sub-optimal, this would also lay the groundwork for more
prescriptive research.

Feedback between Client and Donor Markets

As noted early in the paper, we chose to model competition in nonprofit service delivery,
because competition for resources is already fairly well understood. What is not well
understood, however, is the feedback effect that competition for clients has on the donation
process. A large client base may be particularly attractive to some donors under some
circumstances, but less important in other cases. And when users are also donors, there may be
differences in the way competition unfolds and the process through which donor expectations are
set. This, in turn, may have important ramifications for the actual and optimal behavior of
organizations, and needs to be better understood.

CONCLUSION

Though its tradition of collaborative relationships remains strong, the nonprofit sector is today
coming to grips with an environment in which competition is also important and increasingly
prevalent. While such a statement may seem obvious in light of the preceding analysis,
interviews with managers suggest that many nonprofits still do not recognize this reality
(Weinberg and Ritchie 1999). This suggests that managers need to give greater consideration to
competition in their planning and decision-making processes.

In doing so, however, managers should not assume that business models of competition can be
transferred seamlessly to the nonprofit sector. It is important, for instance, for organizations to
determine what kind of competition they face – combative, collegial or alternative – so that they
may understand the nature of the forces that affect them. Doing so helps organizations determine

-38-
how controllable is their environment, and what options they have to shape their own destiny.
Which course of action is best depends not only on the circumstance, but also on the skills and
preferences of the manager and organization, and providing such advice is beyond the scope of
this paper. But by enabling managers to better understand the forces that govern their
competitive situation, our model helps eliminate unnecessary guesswork by slimming down the
decision set to a collection of strategies that are reasonable and well-considered. In so doing, it
promises to enhance managers’ ability to understand their environment, reduce the effort needed
to identify strategic options, and improve the quality of decision-making in the nonprofit sector.

-39-

Driver
1. Recognition of nonprofit
effectiveness
2. Entrepreneurial drive
3. New technological
opportunities
4. Government tasks
devolved to nonprofits
Drivers of Competition Among Nonprofit Organizations
Consumer-Based
Different organizations have
emerged to meet the unique
needs of different groups
Providing complete service to
clients means nonprofits
expand into areas of others
Limited consumer time and
attention makes many
prosocial behaviors substitutes
to some degree
TABLE 1
Drivers of Nonprofit Sector Growth
Growing public acknowledgement of nonprofit as an effective
organizational form has raised their profile and encouraged the
formation of new not-for-profit groups.
Increased prominence and credibility of nonprofits has attracted an
entrepreneurial element that values new and complex challenges:
• Some seeking to satisfy needs unmet by existing organizations.
• Others looking for personal fulfilment by working in a small
organization of their own creation.
Technology has produced new approaches for delivering services to
those in need. New nonprofit organizations have been established
to put these approaches into practice.
Rising public debt in many jurisdictions and voter aversion to
government deficits has led to efforts to streamline the public sector.
Nonprofits have assumed responsibility for meeting many social
needs.
While some of this demand has been satisfied by growth of existing
agencies, new organizations have also emerged to handle the load.
TABLE 2
Managerial External
Entrepreneurial drive is Withdrawal of public sector funds
permeating the nonprofit has increased importance of
sector attracting clients
Performance-driven Cross-sector expansion
management leads to focus • Business into nonprofit domains
on achieving specific goals • Nonprofit commercial ventures
Competition for funds makes Geographic constraints
managers better able to are increasingly seen as
respond to competitive surmountable
pressures in service delivery
-40-
 TABLE 3
Types of Nonprofit Competition

Type Key Characteristics Examples

COMBATIVE Aggressive and adversarial Abortion debate
Organizations have different Urban drug problems in
fundamental goals, or define the Vancouver, Canada
problem differently
Similar to private sector competition

COLLEGIAL Occurs when there is strong incentive Feeding the hungry

to cooperate
Need being met is often massive, Fighting epidemic disease
urgent and life-threatening
General agreement on both problem
and solution – organizations have a
sense of common cause

ALTERNATIVE

Variety-Based Variety of product alternatives needed Drinking driving campaigns

to maximize impact
Organizations act as independent
agents, producing multiple methods to
achieve the same goal

Preference-Based Occurs when individual differences in Family counseling

preference are substantial
Differentiation can occur along multiple,
overlapping dimensions

Technology-Based Occurs when a single need can be met Communication for the deaf
using multiple types of skill sets
May be well entrenched, or emerge Internet libraries
suddenly with the development of new
capabilities

Directional Stems from disagreement on the Environmental protection

appropriate balance between ideology
and practicality

Pragmatists willing to lose clients to

ideologically stricter alternatives, but
the reverse does not hold

-41-
 TABLE 4
Impact of Competitive Forces on the
Nature and Intensity of Nonprofit Competition

Effect of an Increase on
Nature of Force
Competitive Intensity

SOCIAL FORCES
Social norms against nonprofit competition Ú
Issue divisiveness ¯
Issue morality and emotionality ¯
Legal impediments to multiple providers Ú
Public awareness and understanding of issue moderates influence of
other social forces

PRODUCT FORCES
Differentiation capability ¯
Pace of innovation ¯
Riskiness of service / trust required Ú
Feasibility of selling service ¯
Economies of scale / scope Ú

AUDIENCE FORCES
- CLIENT FORCES
Criticality to mission ¯
Competing demand ¯
- DONOR FORCES
Reliance on major donors ¯
Strong donor relationships Ú
Domain-specific donor contributions Ú

INTERNAL FORCES
Competitive ideology ¯
Collaborative mission Ú
Tolerance of alternative approaches Ú
Desire for prestige ¯

-42-
 TABLE 5
Managerial Benefits of the Model

Benefit

1. Insight Makes sense of the competitive environment:

• Identifies type of competition
• Describes nature of interactions with rivals
• Explains forces governing these interactions

2. Strategy Facilitates evaluation of key strategic alternatives:

• Control environment by actively managing competitive forces
• Adapt to environment by adjusting own behavior
• Change environment by refocusing on new product-markets

3. Tactics Helps in developing, selecting and implementing tactics

• What to do
• When to do it
• Whom to do it with

-43-
 FIGURE 1
Growth of Charities in the United States: 1981-1997
Relative to Population
(Only 501(c) firms included)

800,000 Number of Charities 300

Number of People
700,000

U.S. Population (millions)

250
Number of Charities

600,000
200
500,000

400,000 150

300,000
100
200,000
50
100,000

0 0
81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19
Source: IRS Statistics of Income reports; U.S. Census Bureau

FIGURE 2
Nonprofits Serve Multiple Publics

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-44-
 FIGURE 3
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 FIGURE 4
Shapers of Nonprofit Competition in Service Delivery

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-46-
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NOTES

1
Complicating the process further, it is not merely a question of deciding which issues to care
about (“product” choice), but also which solution to adopt for each issue (“brand” choice).
For instance, an individual who decides to embrace environmentalism may elect to support
Greenpeace, join the local urban gardening association, or participate in the office carpool.
Each of these options represents a different approach to the same broad goal.
2
Competition between nonprofits and for-profit firms, while important, is not studied here. For
analysis of this issue, see Rose-Ackerman (1986) and Steinberg (1987).
3
In fact, economic theory suggests that donors prefer this arrangement since it affords them
greater control over the way their contributions are used (Bilodeau & Slivinski 1997).
4
This is not to deny that nonprofit organizations have an interest in self-preservation, but rather
to suggest that organizational performance is generally regarded as less important than
success of the mission.
5
By this we do not mean to suggest that trust is unimportant in the private sector, but rather than
it is especially central in many nonprofit-client relationships, making its impact there more
universal and more pronounced.
6
This raises an interesting strategic marketing question. If a nonprofit organization feels it
would benefit from the influence of public opinion, it may seek to raise public awareness of
an issue as a means of fostering conditions that are more amenable (either more competitive
or more cooperative).
7
Economies of scale are savings that are realized when an expansion in output reduces the unit
costs of production. Economies of scope occur when the average cost of producing and
marketing a set of products jointly is less than the average cost of producing and marketing
them separately.
8
Feigenbaum (1987) is a notable exception.

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