Written by Sandra Fernholz
Many marketers still think that crowdfunding platforms are solely used by start-ups and individuals. If used effectively though, established companies can benefit from numerous advantages.
Internet, online marketing, social media, crowdfunding, brand awareness. I am sure that you have heard all or at least some of these buzzwords considering you are reading this blog post online. The Internet 2.0 aka social media has made the world a small place. Billions of people are connected within seconds and share their message with the world. For marketing professionals, this provides great opportunities and great challenges at the same time. The famous metaphor describing how marketing used to be like bowling and has now transferred into a system comparable to a pinball game shows the unpredictability and almost non-existent controllability especially of social media (Hennig-Thurau, Hofacker, & Bloching, 2013).
On the other hand, this unpredictability opens a sheer endless repertoire of opinions, ideas, and feedback opportunities. It is just common sense that companies want to tap into this groundswell in order to optimize their products or services (Li & Bernoff, 2008). From a company’s perspective, the rise of crowdfunding seems to be one possible answer to this trend. At this point, crowdfunding is mostly known in relation to start-ups or independent projects, but how could already established companies also make good use of it?
What Is Crowdfunding?
“Crowdfunding involves an open call, mostly through the Internet, for the provision of financial resources either in the form of donation or in exchange for the future product or some form of reward to support initiatives for specific purposes. It can be seen as an alternative to looking for investors” (Belleflamme, Lambert, & Schwienbacher, 2013).
In general, crowdfunding involves three parties: The creator, the backers, and the platform. The creator is the person or organization who is the inventor of the project and needs support. This support is often financial, but most creators are also very eager to get feedback on their idea and new insights in general. This is also the reason why established companies are finding it more and more attractive. The backers are individuals sponsoring the project and therefore “backing” it. The platform is where the process takes part. Worldwide, there are many crowdfunding platforms designed for the sole purpose of providing a public secure space online for crowdfunding projects.
Who Participates in Crowdfunding and Why?
In order to properly interact with consumers, a company first needs to gather all relevant information and interpret it to its best capabilities (Berthon, Pitt, Plangger, & Shapiro, 2012). Consequently, the first question to ask oneself is why the concept of crowdfunding even works. How have customers changed? Decades ago, trade was characterized by individuals putting their skills to work and trading the products or services for other items. Since distribution was basically focused on geographically close regions, word of mouth was very strong and merchants needed to be utterly aware of their reputation. With better transportation possibilities but customers not being able to communicate easily with each other, this changed, so that companies could get away with marketing strategies which were not always entirely truthful. With the rise of the Internet – especially social media - customers are again capable of communicating intensely, frequently, and without delay with each other, forcing companies back to almost complete transparency (Duffy, 2015).
Traditionally speaking, individuals backing crowdfunding projects can be seen as lead users. They are curious and open to new ideas and opportunities and therefore willing to contribute in different ways in order to drive innovation forward (van Hippel, 1986). Due to this interest in the creation process and advancement of new knowledge, they can certainly additionally be seen as early adopters (Rogers, 2003). Their feedback is very valuable for the company and often leads to a higher distribution of the product. Nevertheless, in the case of crowdfunding, this is only applicable if they are not backing a project due to emotional reasons such as it being a friend’s or family member’s project.
With transparency becoming ever stronger in the new era of the Internet, consumers have increasingly begun to actively take part in the creation of a product instead of simply buying. These so-called presumers are interested in participating in the process and therefore co-creating the product (Trendwatching.com, 2012a). This also goes for custowners who are additionally looking to invest emotionally and financially in the production process (Trendwatching.com, 2012b). All of these activities are welcome and much appreciated when interacting on crowdfunding platforms.
Why Use Crowdfunding as an Established Company?
In order to successfully tap into the groundswell, companies need to listen to their stakeholders, talk to them, and energize them (Li & Bernoff, 2008). Crowdfunding offers new opportunities to do so.
Listen and Talk to Your Stakeholders
Crowdfunding platforms offer the advantage of a designated space for the parties to meet. An individual browsing through a crowdfunding platform is already in the right mindset and does not feel bothered unlike when being confronted with online marketing such as banners or pop-ups. This puts your project’s message in a more favorable context leading to increased interest and initiative for feedback, may it be financial, emotional or even rational. If a person perceives him- or herself as an innovative, curious and/or engaged person, crowdfunding might become part of their identity project (Deighton & Kornfeld 2009). If your project plays well into this, it is easier to convince them from being browsers to actually being backers.
Many backers are more than willing to give feedback through the comment option. You can use this for invaluable insights on what they are actually looking for and what the added value of your brand or project is.
Energize Your Supporters
A crowdfunding platform is a great place to interact. Due to sharing options connected to other social platforms such as Facebook or twitter, enthusiastic backers can inform others about your campaign and convince them to do so as well. By offering certain advantages such as rewards, you can give your backers more incentive to support your cause.
5 Tips on How to Put Crowdfunding Platforms to Good Use
Established companies should harness the opportunities that crowdfunding platforms present even more than some of them already do. When doing so, it is important to play along the rules though. In order to do so, I will give you some important steps to consider:
Figure Out the Purpose of Your Crowdfunding Campaign Beforehand
What are you trying to achieve by using a crowdfunding platform? Who are you trying to attract and why? It is essential to be very clear about the strategy pursued when resorting to crowdfunding before actually kicking off a project. Being unsure might lead to serious consequences concerning for example your brand image.
Choose the Right Platform for Your Project
Once you have figured out your strategy, it is time to choose a platform. Comparable to any other marketing strategy, knowing your audience is the key to success. When it comes to crowdfunding therefore, the right platform is a key to effective customer segmentation (Aljukhadar & Senecal, 2011). Different platforms have different visions and projects that are promoted. By choosing the right one, one step towards the right target group is made.
Crowdfunding platforms can be used in order to assess new markets. Nevertheless, it is important to do research first on whether crowdfunding is culturally accepted and which platforms are used for which purpose. The American platform Kickstarter for example is largely focused on US citizens, but has also gained international recognition (Kickstarter, 2015). A project posted there will consequently attract mostly American attention, but could also attract visitors from all over the world. Nevertheless, if you had the intention to assess for example the German market, you would be much more successful by simply putting your project on Startnext (Startnext, 2015).
Choose Your Project Wisely
Another important part is that potential backers do not feel used. Poorly arguing why an established company would need financial support will reveal the more important need for feedback or brand awareness very quickly. It can therefore be unwise to crowdfund a certain product, but better to focus on other parts. Opportunities lay for example in extensions of a product, such as computer games, where backers support special extra features. This can also provide the company with important insights as to which add-ons are even desired. A successful example for this can be found by looking at Larian Studios LLC and their successful Kickstarter campaign for Divinity: Original Sin (Larian Studios LLC, 2013).
Another great opportunity that you might want to consider lays in Corporate Social Responsibility (CSR) activities. This can include supporting start-ups or smaller companies, like the example of Microsoft and their #BingLaunch for Small Businesses illustrate (Microsoft, 2013).
Present Your Project Appealingly and Transparently
Trust has become an important currency in regard to online consumption which you cannot and should not disregard but rather integrate in your marketing strategy (Urban, Sultan & Qualis, 2000). When a crowdfunding project is consequently perceived as credible and authentic, your company will be accepted in the discussion (Barwise & Meehan, 2010). This can lead to successful market research and new perspectives on innovation. Often, backers leave comments generating invaluable insights for the company.
When actually putting the project on the platform, storytelling plays an essential role (Singh & Sonnenburg, 2012). The right presentation offering good content in the right context and consequently offering authenticity is the key to a successful crowdfunding campaign. This often includes an appealing video, consistent communication and transparency toward the (potential) backers. Many things that are not directly connected to their main product can be perceived as added value for the backers’ identity projects and will therefore be supported.
Connect Your Project to Your Internal Feedback Loop
People browsing a crowdfunding platform can stumble across the project and get in touch with the brand. If your campaign is well done, backers and brand fans will share the campaign with their networks and more people will become aware of it. This can also be done through all your social media channels. It is wise to include a link to your homepage where more projects can be displayed. If it is your homepage, your company can ask for feedback for projects directly connected to your products. To encourage consumers to do so, rewards can be proposed.
A word of caution though: As soon as crowdfunding platforms are misused too often or platforms start to only accept start-ups or independent individual projects, established companies will need to search for other spaces in order to get consumer insights. In favor of an open Internet without too many restrictions, established companies should harness the opportunities of crowdfunding carefully.
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