Choosing a crowdfunding model considering strategic customer behaviour

Abstract

Initial creators can launch reward-based crowdfunding projects using either of two models: All-Or-Nothing (AON) and Keep-It-All (KIA). Under AON, creators receive nothing unless the funding target is achieved. Under KIA, creators keep the entire amount raised, regardless of whether the funding target is achieved. Therefore, under AON, customers will obtain high-quality products if the funding target is achieved, and otherwise, obtain nothing. Under KIA, high-quality products are produced if the goal is met and otherwise, the results are scaled-down products whose quality depends on the amount of funding raised. We build a two-stage model in which two customers (representing informed and uninformed customers) sequentially make their decisions in the two stages. This paper focuses on the opportunity cost borne by the informed customer who pledges in the first stage and we analyse how his strategic behaviour affects the creator's model selection. Our analysis shows that when the fixed cost is large, the AON model has a higher success rate and is more profitable than the KIA model. By analysing the expected profit, success rate and risk by numerical study, we show that (1) when the fixed cost is small, KIA is more profitable than AON. (2) The success rate using the AON model is always higher than that using the KIA model. (3) The risk under AON is higher than under KIA in most cases.

Keywords:

• crowdfunding
• All-Or-Nothing
• Keep-It-All
• product quality
• strategic customer behaviour
• opportunity cost coefficient

Acknowledgments

We would like to thank the editor, associate editor, and the anonymous reviewers for their helpfulcomments and valuable suggestions. They are also grateful to editors for detailed proofreading.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Hu et al. (2015) state:‘ For the proposed project to succeed, both buyers must sign up. This is necessary to model the coordination between buyers. In practice, all crowdfunding projects require many buyers.’

2 Jing and Xie (2011) consider a seller facing two types of potential customers who differ in their knowledge for the product (i.e. one informed and one uninformed customer). This two-stage assumption has been widely used to study the crowdfunding process (Hu et al., 2015; Yang et al., 2020).

3 In reality, $s_1$ may choose to sign up in the second stage. Customer $s_2$ makes his decision according to the campaign's progress, which means knowing $s_1$'s decision in the first stage. In this study, we assume $s_2$ is a myopic customer, that is, when $s_1$ does not sign up in $t_1$, $s_2$ intuitively believes $s_1$ will not sign up in any stage. In this case, $s_2$ makes a decision considering only his own participation in the campaign, as if $s_1$ is no longer a potential customer. In addition, $s_1$ also decides on his behaviour according to $s_2$'s characteristics.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [71671175; 71631006].