Crowdfunding Delivers More Than Just Money
Hidden Values of Crowdfunding
For more than a decade, start-ups companies have utilized reward crowdfunding to get billions of dollars to raise early-stage financing. Companies pre-sell products to consumers while the products are under development, and customers receive the product as a reward for support once development is over. Established companies like Coca-Cola, P&G, and Lego use this strategy, not for raising funds, but for assessing the voice of the customer which is crowdfunding’s hidden value. Crowdfunding is more than just raising money. It’s an alternative to the traditional ways of securing customer feedback (from focus groups) into product development. The readiness of crowdfunding customers to involve themselves, and expand their contributions, beats every other form of customer interaction. Over the years, crowdfunding customers offered concrete product ideas besides connecting companies to potential retailers and suppliers. Customers put their money if their interests are more aligned with that of the company being backed. An important issue in customary market research is the differing interests of modernizing companies and probable customers. Companies want products that sell well with margins, while customers without a stake in the company, want the best products at the lowest prices.
Crowdfunding customers are interested in economic sustainability of the product otherwise they likely won’t get the quality they need. Crowdfunding experts feel somebody saying they will buy a product, and actually making a purchase, are very different propositions. There are risks for crowdfunding customers regarding the final product and about their participation in its development. If companies don’t involve or ignore their customers, the relationship with the crowd sours even despite the product being liked. GE used crowdfunding for a new ice-maker, but customers complained about lack of engagement. Backers did not want a device to be delivered without feeling involved and informed about development. To understand better how reward crowdfunding works and how companies could benefit from it, over 20,000 crowdfunding campaigns on the popular platform Kickstarter.com, were carefully analysed and two major recommendations emerged.
Show Yourself as Keen for Co-Creation
Crowdfunding customers or ‘backers’ eagerly contribute time and knowledge for crowdfunding projects if the company is genuinely open to their ideas. Research shows that interactions with backers for product improvement, significantly increases pre-sales by an average 65% during the crowdfunding campaign. Australian headphone maker Nura was deluged with useful feedback on their early prototype helping deliver the product consumers wanted, not the product originally created.
Recognize the Values of Distant Information
Crowdfunding ensures companies an outside perspective on new products which is different, and distant, from their existing knowledge. A game developer backed by a frequent theater-goer will focus on a well-written story with interesting character, making the product appeal to a broader range of customers. Customers who have funded products in other market segments provide60% more valuable feedback for pre-sales than customers who previously invested in that category.
Reward crowdfunding aligns companies and customers superbly, matching the supply and demand of capital besides enabling interactions that enhance values being created if companies care about these interactions and are capable of looking beyond the publicity. Crowdfunding not only provides financing for start-up companies, but is also a powerful tool for big companies seeking customer inputs during product development as customers prefer putting money for developing more enterprising and innovative products.
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