Designing Reward Structure for Crowdfunding Campaigns

Abstract

Reward-based crowdfunding allows entrepreneurs (creators) to raise capital through campaigns, where potential consumers (backers) pledge small amounts of funds. A key operational decision for a creator is the reward structure of a campaign, that is, the number of rewards and their contribution levels. We examine the association between the number of rewards and the funding success of a campaign. We also investigate the moderating roles of (1) dispersion of reward prices, (2) reward type, and (3) creator’s experience on the association between the number of rewards and funding success. Using data from Kickstarter on 191,480 campaigns, we find that funding success of a reward-based crowdfunding campaign improves with the number of rewards, but with diminishing returns. We also find that the likelihood of funding success is higher for campaigns that offer more rewards with low dispersion of reward prices. Contrary to our expectation, the benefit of offering more rewards is greater for campaigns with experiential rewards (rather than product rewards). Our analysis also shows that the benefit of offering more rewards is higher for less experienced creators. As such, our study provides guidelines on reward structure design for creators to improve the design of their campaigns in reward-based crowdfunding.