Date: 28 April 2023, Friday
Product Development in Crowdfunding: Theoretical and Empirical Analysis
Sıdıka Tunç Candoğan
National University of Singapore
This is an online seminar. To obtain event details please send a message to department.
Problem definition: Crowdfunding goes beyond raising funds. Entrepreneurs often use crowdfunding to solicit feedback from customers to improve their products, and may therefore prefer to launch crowdfunding campaigns with basic versions of their products. Yet, customers may not be persuaded by a campaign if a product appears underdeveloped. In view of this trade-off, a key question for an entrepreneur is how far to enhance a product before launching a crowdfunding campaign. Methodology/results: Analyzing a game-theoretical model and testing its predictions empirically, we study how a product’s level of enhancement at campaign launch influences both whether an entrepreneur continues to improve the product during the campaign and whether the campaign is successful. We show that as the product’s level of enhancement at campaign launch increases, the likelihood of product improvement during a campaign first increases and then decreases. Furthermore, although our theoretical model intuitively predicts that the likelihood of campaign success always increases with the level of enhancement at campaign launch, our empirical analysis shows that the likelihood of campaign success first increases but then decreases. This counterintuitive result may be due to customers being overwhelmed with the complexity of highly enhanced products. Finally, while crowdfunding experts believe that products should be enhanced as much as possible before a campaign, we show that this is not always the best strategy. Managerial implications: Our study provides practical insights on how entrepreneurs can use crowdfunding for product development and improvement. Specifically, entrepreneurs should avoid enhancing their products too much before campaigns because this may not only decrease the chances of campaign success but also hinder entrepreneurs’ opportunity to save some of development costs (e.g., market research cost) by involving customers in product development.