Choice of pricing and marketing strategies in reward-based crowdfunding campaigns

Abstract

As a newly-emerged financing method, crowdfunding has been gaining popularity among entrepreneurs in recent years. Two major functions are featured in crowdfunding campaigns: financing and marketing. Focusing on reward-based crowdfunding campaigns that adopt the “All-or-Nothing” mechanism, this paper mainly investigates how entrepreneurs set their funding targets and sales strategies with two cases considered—one without and the other with financial constraints. In particular, entrepreneurs without financial constraints may concentrate on profit maximization via product marketing, while those with financial constraints may start with establishing funding targets to ensure the success of the campaign first, and then the retail of products. Two theoretical models are built—one with financial constraints and the other without financial constraints—to determine the optimal product price and sales scheme. We find that the consumers' perceived value of extra rewards and the probability of product matching both play a significant role in product price optimization and profit maximization. Without financial constraints, entrepreneurs' choices on sales schemes vary depending on the consumers' perceived value of extra rewards and the probability of product matching, whereas a two-stage sales scheme is optimal for entrepreneurs with financial constraints. Our results also reveal that a higher probability of product matching may benefit social welfare but damage consumer surplus under certain circumstances. Using real data from the Kickstarter platform, this paper offers a new perspective to enrich the understanding of theoretical results.