There’s a lot of buzz surrounding crowdfunding these days. But for every wildly successful campaign—like those spearheaded by Pebble or Oculus Rift—there are dozens, if not hundreds, of failed bids for cash.
If you’re considering a crowdfunding campaign and would like it to be more like the former than the latter, you might want to give some choice those to whom you’re appealing for money.
New research from the University of Toronto’s Rotman School of Management shows that companies trying to raise money through online crowdfunding platforms have the best chance of succeeding (and of making the highest profit) when they offer a menu of options and different price points to “pre-buyers.”
The typical crowdfunding model sees a company (or individual) propose to produce an item or project if they raise a target amount of money. If the target isn’t hit, the cash goes back to those who’ve pledged.
The Rotman study found that some pre-buyers place a very high value on seeing a project succeed, and are therefore willing to pay more to see it through—especially if they think the project may be falling short. You can appeal to this, researchers found, by offering a range of high- and low-price options to funders—for instance, a “VIP package.” (Bonus: early high-end contributions tend to attract other pre-buyers who want proof that others are committed before forking out money.)
It’s all about tapping into that sweetest of sweet spots: consumers’ willingness to pay more, says Ming Hu, an assistant professor of operations management at Rotman (who co-authored the study with associate marketing professor Mengze Shi and PhD student Xi Li)—and that’s not possible using most traditional methods of selling. “You’re still left with money on the table,” Hu says.
Other findings from the study:
- Introducing new pricing options later in a campaign—like, for instance, a new “bundle”—can keep momentum going at a time it traditionally wanes.
- Another way of keeping momentum going? Set a low price point midway through the campaign to generate volume.
- Crowdfunding profits tend to be strongest when high-end pre-buyers—that is, those spending the most—come on board in the early days of the campaign (as opposed to near the end).