Scarcity Strategy in Crowdfunding: An Empirical Exploration of Reward Limits

Information Systems Research, Forthcoming

49 Pages Posted: 1 Jun 2020 Last revised: 2 Jun 2020

See all articles by Lusi Yang

Lusi Yang

Georgia State University - J. Mack Robinson College of Business

Zhiyi Wang

University of Colorado at Boulder - Leeds School of Business

Jungpil Hahn

National University of Singapore (NUS) - Department of Information Systems and Analytics

Date Written: June 30, 2016

Abstract

Scarcity-based marketing strategies (e.g., limited edition products) have widely been embraced by firms to increase sales. Recently, a similar practice has been increasingly adopted in reward-based crowdfunding platforms in the form of reward limits, whereby project creators are able to restrict the quantity of contributors in each reward tier. Despite an increasing volume of research devoted to understanding project design strategy and fundraising success, the role of such scarcity strategy has been neglected. The current study strives to fill this void by uncovering the effect of reward limits in eventual and concurrent funding performance. Specifically, we performed campaign and campaign-day level analysis with data from Kickstarter. At the campaign level, we find that setting reward limits at the beginning of a campaign is beneficial for final funding outcomes across four different measures of crowdfunding performance. Further, the number of limited reward tiers was shown to have an inverted U-shaped relationship with fundraising performance. Potential endogeneity issues were addressed with propensity score matching and the Heckman selection model. At the campaign-day level, we examined the dynamics of reward limit during the course of fundraising using a two-way fixed effects panel model. Incorporating new limited reward tiers is helpful for attracting new backers, but having reward tiers being “sold out” will demotivate subsequent backers to contribute to the project and thus lead to lower funding speed in subsequent days. Our findings highlight the importance of strategically using the scarcity strategy in crowdfunding. Our research extends the crowdfunding literature by showing the dynamic influence of project attributes within the campaign duration.

Suggested Citation

Yang, Lusi and Wang, Zhiyi and Hahn, Jungpil, Scarcity Strategy in Crowdfunding: An Empirical Exploration of Reward Limits (June 30, 2016). Information Systems Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3591620

Lusi Yang

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

Zhiyi Wang (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Jungpil Hahn

National University of Singapore (NUS) - Department of Information Systems and Analytics ( email )

Singapore

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