Media Releases

Range of options, prices brings in the crowdfunding bucks, says Rotman research

May 7, 2014

TORONTO, ON – It does­n’t work in the tra­di­tion­al mar­ket­place, but in the world of crowd­fund­ing, giv­ing con­sumers options and the choice to pay more for essen­tial­ly the same prod­uct makes sense, new research con­firms.

A study by researchers at the Uni­ver­si­ty of Toronto’s Rot­man School of Man­age­ment shows that those try­ing to raise mon­ey through online crowd­fund­ing plat­forms have the best chance of their project suc­ceed­ing and mak­ing the high­est prof­it when they offer a menu of options and dif­fer­ent price points to poten­tial “pre-buy­ers.”

Under the typ­i­cal crowd­fund­ing mech­a­nism, a cre­ator pro­pos­es to pro­duce an item or project — such as an artis­tic event or tech­no­log­i­cal inven­tion — fix­es their tar­get crowd­fund­ing goal, and then must reach the tar­get through online fundrais­ing with­in a spec­i­fied peri­od. If the tar­get is not reached, the mon­ey con­tributed is refund­ed back to the pre-buy­ers.

The study found that some pre-buy­ers may place a high val­ue on see­ing a project suc­ceed and are will­ing to pay more, espe­cial­ly if they think oth­er poten­tial pre-buy­ers may not be will­ing to pay as much.

As a result, it’s impor­tant to offer a range of high­er and low­er-priced options, for exam­ple a VIP pass to a con­cert for high-end con­trib­u­tors vs. reg­u­lar tick­ets for low-end ones. Ear­ly con­tri­bu­tions by high-end con­trib­u­tors in turn attract oth­er pre-buy­ers who may be wait­ing for oth­ers to start fund­ing the cam­paign before they com­mit at a low­er price point.

The find­ing points to the poten­tial for high­er prof­its under the crowd­fund­ing mod­el because it allows cre­ators to tap into some con­sumers’ will­ing­ness to pay more, sug­gests Ming Hu, an assis­tant pro­fes­sor of oper­a­tions man­age­ment at the Rot­man School. He co-wrote the study with Mengze Shi, an asso­ciate pro­fes­sor of mar­ket­ing and Xi Li, a Rot­man PhD stu­dent.

“If you com­pare crowd­fund­ing to the tra­di­tion­al way of sell­ing, in that case you can­not do price dis­crim­i­na­tion,” said Prof. Hu. “You’re still left with mon­ey on the table.”

Depend­ing on the char­ac­ter­is­tics of their pre-buy­ers, cre­ators may also con­sid­er intro­duc­ing new options lat­er on in the cam­paign to main­tain momen­tum, or set­ting a low price point if they want to gen­er­ate vol­ume.

But the study warns that prof­its can be hurt if too many high-end pre-buy­ers are giv­en an incen­tive to come to the cam­paign lat­er rather than ear­li­er.

The crowd­fund­ing indus­try has shown huge growth. Kick­starter, one of the most pop­u­lar plat­forms, has already raised more than $800 mil­lion U.S. and sup­port­ed more than 50,000 projects since it start­ed in 2009.

The paper is online at

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Ken McGuf­fin
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Rot­man School of Man­age­ment
Uni­ver­si­ty of Toron­to
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