The Marketing Advantages of Crowdfunding

Crowdfunding can be a great way to push a product to market at a lower risk than traditional manufacturing and distribution models. Because products are pre-ordered, you will have a precise amount to produce and won’t be left with excess inventory. Moreover, financial risk is limited as no goods are manufactured unless a certain revenue milestone is passed, though you will need to have the arrangements in place of course.

It’s easy to understand why crowdfunding is attractive to startups and small businesses. But my aim here is not to focus on the generic benefits described above but rather to dig into the specific marketing advantages such as reach, psychological ownership and brand building.

In this article you will learn about these various marketing advantages of crowdfunding — and what to consider when evaluating whether it is the right distribution channel for you.

Crowdfunding definition

Quickly let’s just get some housekeeping out of the way. There are several types of crowdfunding. The type I’m covering here is called reward-based crowdfunding (which I will refer to synonymously as crowdfunding). This is the format you see on platforms such as Kickstarter and Indiegogo.

In reward-based crowdfunding consumers essentially pre-purchase products. They give you a pledge equalling a certain monetary amount today in return for a reward later, which will usually include the product or a product bundle at a significantly reduced price.

Another common crowdfunding format equity crowdfunding — where instead of products people get a share of the firm as a reward for their pledge, for example SEEDRS. Other forms include debt crowdfunding, donation-based crowdfunding, and royalty-based crowdfunding. If you want to read more about these types, the European Commission has written up nice pages on the topic here.

How crowdfunding can create marketing advantages

I’ve split this discussion up into five major categories in which crowdfunding can boost your marketing efforts.

These are:

Reach & Awareness
Consumer Engagement
Market Validation
Brand Community
Brand Positioning

Increased reach and awareness

For marketing to be effective it has to have reach. It doesn’t matter how good your product is, how much you paid for you logo, or how intuitive your e-commerce site is; if you don’t reach your target customers you won’t make a single sale. Too many entrepreneurs fall in the trap of falling in love with their products without considering input from the market. Then they are shocked that consumers don’t flock to their brands and line up for their products. Don’t be this person.

If you don’t have the financial means to purchase reach through other marketing channels, crowdfunding can compensate, and more than that if executed well. By listing your project on Kickstarter and putting in the work, you may earn up to 18.4 million impressions on your crowdfunding campaign from people who are actively looking for cool new products. There is of course a big if. Only the best projects get featured on the homepage and reaching there requires intense preparation. Regardless, Kickstarter and Indiegogo users browse about 3 different pages on each visit leaving them plenty of time to discover your product.

Similarweb data for website traffic to Kickstarter and Indiegogo.

In addition, Youtubers and other online personalities regularly curate lists of interesting projects they find on crowdfunding sites which further expands your reach and awareness. As do various review sites. On top of that, crowdfunding campaigns are prime PR opportunities, both for you to actively seek out and, if lucky, passively receive.

Consumer engagement

Crowdfunding provides a platform for consumer engagement. Depending on your size and industry, you may find it hard to gain any real traction engaging consumers on online platforms such as Instagram, Facebook, or any other channels you may be utilizing. That’s because consumers are a fragmented bunch and your brand is only a tiny little fraction in their heads. Therefore managing to join together sufficient amount of who are interested in talking to you (or about you) at the time they want to in the place they prefer is a daunting task.

On crowdfunding platforms this is slightly easier. For example, Kickstarter’s DNA is very much about facilitating a dialogue between backers and creators. Backers tend to be early adopters or status consumers that wish to have a say in the products they are purchasing and they choose crowdfunding platforms as the channels to do that.

Example of consumer engagement on Kickstarter

consumer engagement example on kickstarter

It’s an impressive feat to accomplish as effective consumer engagement may increase the perceived value of the product by strengthening the psychological link between customer and product.¹ Moreover, co-creative processes like these tend to increase customer satisfaction² and build credibility and trust.

Last but not least, crowdfunding platforms equip you to better engage your target audience through emails. Not only do you collect the emails of your backers but you can be assured that they will read the majority of project updates you send them . Anyone who has ever backed a crowdfunding project will attest to this. Due to the anticipation of the reward, people are excited to hear updates about when they may expect it. This is contrary to typical email lists and gives you an opportunity to get your brand in front of people on a regular interval in which retain and upsell customers, build salience, and brand preference.

Market validation

Before you even think about something like crowdfunding, you should have a strategy in place. Your strategy tells you who your target audience is and how you talk to them, and is guided by your marketing objectives. To make a marketing strategy you need to do market research. Otherwise you won’t be able to understand what customers truly want and won’t achieve product-market fit.

Regardless, success is not guaranteed. Adopting a research -> strategy -> tactics sequence greatly increases your chances of success but never guarantees them. There are countless examples of well researched marketing plans for products that still flopped.

Crowdfunding campaigns can give you more rigid validation. Especially if your venture involves large amounts of risks. For example, if the product you want to offer requires high production costs, then crowdfunding can be a way for you to mitigate large parts of risk and easy your anxiety about producing an undesirable product. Though some costs will undoubtedly be fixed and sunk, you won’t have to manufacture anything unless you collect orders up to an amount defined by yourself meaning you could simply set it at a level most profitable to you.

Insights from consumer engagement are in the same manner incredibly important, and help you validate your product and find product-market fit faster. If you do crowdfund, you certainly should use the opportunity to systematically gather feedback from your backers throughout the entire campaign. Then use what you’ve learned from it to make adjustments to your product to better align it to your target customers’ needs and goals. Doing so will make your product better prepared for mass market once the campaign runs its course.

Building community

People don’t just participate in crowdfunding campaigns for the rewards. Rewards are certainly important but there is also evidence that backers enjoy a higher utility than traditional consumers and there is a strong link between participating in crowdfunding and experiences that generate community benefits for backers.³

People don’t only participate for the reward but also various psychological benefits; one of which is a sense of community and belonging. On top of that there is data that supports that backers enjoy the influence they have on a project and the privileged information flow that comes with pledging.⁴ This makes substantial sense when you think about it. If people wanted only the pragmatic utility of the product then why do they shop on platforms where delivery may be as long as two years after committing to the purchase?

Encouraging backers to form a community around your brand result in large benefits for you. It may help you sustain consumer engagement long after the campaign has run its course and hence maintain all the benefits associated with an engaged group of customers. As will it foster new associations that strengthen the memory network of your brand, which in turn increases salience. Last but not least, an active community can also positively shape perceptions in the mass market.

Reinforce brand positioning

If your brand positioning relates in any way to openness, transparency, or democratization, you may seek to use crowdfunding as a vehicle to solidify that position.

Seeking belonging is a very real goal in the marketplace. But it’s often not the focus for most marketers as it is subtle and likely to operate more beneath consciousness. Evolutionary psychologists term this the ultimate motive for affiliation. The affiliation motive is an heirloom of our past, when humans needed groups to survive. Nowadays the affiliation motive subconsciously activates in the context or prospect of belonging to a group, and triggers behavioural tendencies such as seeking out products that enable connection with others.⁵

A screenshot of Graphene X webpage explaining their backer-centric nature.

It’s a valid strategy to position towards this group, given that you can identify them and have something valuable to offer that can satisfy their affiliation goals. There are even examples brands doing this very thing. Graphene X is one such case that prides itself in being backer-centric, inclusive, and transparent and in doing so capitalizes on the affiliation motive.

Determine if crowdfunding is for you

I’ve covered several marketing advantages that can result from effectively using crowdfunding as a tactical channel. They keyword here is effective. It’s worth pointing out that there are hundreds of campaigns that don’t get anywhere. The key is preparation and hard work. Without that, you are unlikely to benefit from any of the above advantages in any significant manner.

Another thing is that you need to consider your context. Successful crowdfunding campaigns are dominantly physical products. Personally I am not aware of any large scale service campaign ever being prominent on these platforms. So if you are selling a service or subscription of some sort then it is highly unlikely that crowdfunding is an effective channel for you. Novel gadgets, high tech clothing, board games, tarot cards, books and miniatures on the other hand tend to do well.

Last, don’t forget to also consider your brand and your strategy. If your target audience does not visit crowdfunding sites, your message and positioning don’t suit the platform, or a crowdfunding campaign won’t move you closer to your strategic objectives then you should probably move on. Though it’s worth adding that as a small brand, you shouldn’t get to hung up on brand image and you benefit from being able to take greater risk — so if you see an enticing opportunity with crowdfunding don’t be afraid to give it some serious thought.

References

1
Harmeling, C. M., Moffett, J. W., Arnold, M. J., & Carlson, B. D. (2016). Toward a theory of customer engagement marketing. Journal of the Academy of Marketing Science, 45(3), 312–335. https://doi.org/10.1007/s11747-016-0509-2
2
Ranjan, K. R., & Read, S. (2014). Value co-creation: concept and measurement. Journal of the Academy of Marketing Science, 44(3), 290–315. https://doi.org/10.1007/s11747-014-0397-2
3
Belleflamme, P., Lambert, T., & Schwienbacher, A. (2014). Crowdfunding: Tapping the right crowd. Journal of Business Venturing, 29(5), 585–609. https://doi.org/10.1016/J.JBUSVENT.2013.07.003
4
Steigenberger, N. (2017). Why supporters contribute to reward-based crowdfunding. International Journal of Entrepreneurial Behavior & Research, 23(2), 336–353. https://doi.org/10.1108/IJEBR-04-2016-0117
5
Griskevicius, V., & Kenrick, D. T. (2013). Fundamental motives: How evolutionary needs influence consumer behavior. Journal of Consumer Psychology, 23(3), 372–386. https://doi.org/10.1016/J.JCPS.2013.03.003

The Marketing Advantages of Crowdfunding

Crowdfunding definition