Follow the money: Techniques for pricing rewards in crowdfunding projects

Abstract

Crowdfunding, the practice of funding projects by appealing to the mass market, has grown in the past decade to become a significant path of raising money for various ventures. It works by offering people the ability to give a certain amount of money for some reward they will receive once the project is done. But while plenty of academic research investigates what makes projects successful, there is relatively little dealing with understanding how rewards should be priced and understood, and how they affects a project’s success. In this paper, we wish to examine if common pricing techniques used in the “regular” consumer space apply to crowdfunding as well. We constructed the largest dataset of crowdfunding projects, by collecting approximately 180,000 projects from Kickstarter, the largest crowdfunding platform. Using this extensive dataset, we explored several known pricing techniques used for consumers — such as putting a 9 as the last digit, bundle pricing, and anchoring prices — wishing to understand if they work for crowdfunding projects as well. Our results indicate that generally, they do with very high significance (with a few notable exceptions and changes). This helps to show that crowdfunding pricing in more akin to product pricing than to investment-type pricing modes.