Product Development in Crowdfunding: Theoretical and Empirical Analysis

40 Pages Posted: 1 May 2021 Last revised: 19 Oct 2021

See all articles by Sıdıka Tunç Candoğan

Sıdıka Tunç Candoğan

University College London - School of Management

Philipp B. Cornelius

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management; Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Bilal Gokpinar

University College London - School of Management

Ersin Körpeoğlu

University College London - School of Management

Christopher S. Tang

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: April 24, 2021

Abstract

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 for a basic version of their products with few or no enhancements (i.e., limited features). Yet, customers may not be persuaded by a campaign if a product appears too basic. In view of this trade-off, a key question for an entrepreneur is how far a product should be enhanced before launching a crowdfunding campaign. 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 at first increases (because customers are more likely to provide feedback) and then decreases (because of increased production cost for the entrepreneur). Furthermore, although our theoretical model intuitively predicts that the likelihood of campaign success will always increase when an entrepreneur launches a campaign for a more enhanced product, our empirical analysis shows that the likelihood of campaign success first increases and 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.

Keywords: product development, entrepreneurship, innovation, natural language processing

Suggested Citation

Candoğan, Sıdıka Tunç and Cornelius, Philipp B. and Gokpinar, Bilal and Körpeoğlu, Ersin and Tang, Christopher S., Product Development in Crowdfunding: Theoretical and Empirical Analysis (April 24, 2021). Available at SSRN: https://ssrn.com/abstract=3833525 or http://dx.doi.org/10.2139/ssrn.3833525

Sıdıka Tunç Candoğan (Contact Author)

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Philipp B. Cornelius

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management ( email )

RSM Erasmus University
PO Box 1738
3000 DR Rotterdam
Netherlands

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Bilal Gokpinar

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Ersin Körpeoğlu

University College London - School of Management ( email )

1 Canada Square Canary Wharf
London, E14 5AA
United Kingdom

Christopher S. Tang

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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