The Signal Value of Crowdfunded Products

Crowdfunding has emerged as a popular, alternative means of financing new ventures. It's popular with investors but does crowdfunded status have any resonsance with the broader consumer market? This research asks what value there is to a firm in signalling its products crowdfunded financing to consumers.

Crowdfunding is increasingly used as an alternative means of financing new ventures. Instead of asking banks or other professional financial service providers to invest in an idea, crowdfunding pitches ideas directly to the potential customers of the prospective new product - the general public. This crowdfunding audience seems keen to invest too: crowdfunding platforms across the globe raised more than US$30 billion in 2015, a figure the World Bank estimates will triple by 2025.

The rise of crowdfunding ventures has sparked strong scholarly interest. Recent attention has been dedicated to better understanding consumer motivation for participating in crowdfunding, as well as the dynamics and success factors of the crowdfunding process. In this paper, the researchers build on this initial research, and address the novel question of how crowdfunding is interpreted by the broader consumer market. Is there value for the firm in signalling and communicating the source of a product’s financing to consumers? Will consumers react more favorably to “crowdfunded” products? If so, what are the psychological reasons underlying the effect, and what are the related boundaries?

The research reports the results of seven studies that do indeed reveal a consumer preference for “crowdfunded products”, even after controlling for a product’s objective product characteristics. The researchers identify two inferences that help explain this effect. Firstly, consumers perceive crowdfunded products to be of higher quality (although with products that involve high physical risk, this effect is reversed as consumers are not confident in the crowdfunding model's ability to mitigate such risk). Secondly, they believe that supporting crowdfunding reduces inequality in the marketplace. This positive effect is particularly strong among consumers who value social equality.

The findings highlight the conditions under which start-ups and retailers alike might use “crowdfunded” as a differentiating attribute at the point of sale. Because it is currently rare to see crowdfunded labeling in the marketplace, we believe this finding provides a disruptive spark not only for crowdfunding thought but also for crowdfunding practice. More broadly, the research shows that financing methods can have important marketing implications, which managers should consider when defining their communication strategies.

The accepted version of The Signal Value of Crowdfunded Products can be downloaded at City Research Online.