‘Crowdfunding Takes 26% Hit When A Product Is Framed As Both Novel, Useful’

Crowdfunding is reduced by 26 per cent, in any project, when a product is viewed as new and product usefulness as congruent.

This was revealed according to a recent big-data analysis of Kickstarter projects, led by researchers from the Singapore Management University, HEC Paris, the University of Technology Sydney and INSEAD.

“Prior research has shown that products that are novel and useful typically succeed in the marketplace,” said study co-author Amitava Chattopadhyay, Professor of Marketing and the GlaxoSmithKline Chaired Professor of Corporate Innovation at INSEAD.

“But when projects make both claims, backers either assume a product’s benefits are inflated, that it carries a high risk of failure or that it divides the crowd between believers and sceptics, making it hard for backers to pick a side.”

“The higher level of uncertainty in the crowdfunding context drives backers to choose modest innovations and shy away from more extreme innovations,” said Cathy Yang, Assistant Professor of Marketing at HEC Paris.

“This is deeply disappointing as the premise of crowd funding is to support creativity and innovation”, said Anirban Mukherjee, Assistant Professor of Marketing at Singapore Management University.

“Entrepreneurs therefore might be advised to frame a project as only novel or only useful, rather than both”, Dr Ping Xiao of the University of Technology Sydney (UTS) added.

The data show that claims of novelty and usefulness, taken separately, do increase the total pledge amount. As a matter of fact, they have a very large initial effect.

A single claim of novelty increases project funding by about 200 percent, while a single claim of usefulness leads to an increase of about 1200 percent, as compared to projects devoid of any such claim.

“As opposed to the regular marketplace, where buyers feel protected by consumer laws, crowdfunding backers may face a very high level of uncertainty”, said Chattopadhyay.

After all, the developers may fail to come up with the final product, or they may need to change specifications along the way. It’s been shown that consumers prefer more traditional products when their perception of risk is high. Inventors that claim that their product is very innovative, i.e. both highly useful and novel, may find it more difficult to get funded because of a higher risk perception by the crowd.