Pricing strategies in reward-based crowdfunding: Whether to introduce price guarantee?

Abstract

Reward-based crowdfunding often exhibits high uncertainty in terms of product quality and market performance; thus, consumers may choose to strategically delay their purchases until crowdfunding succeeds. Price guarantee (PG) is adopted by some crowdfunding platforms to encourage consumers’ participation in crowdfunding, but it also reduces the flexibility to change prices in the future. To address the strategic issue for reward-based crowdfunding regarding whether to introduce PG, we develop a two-stage theoretical model composed of a crowdfunding stage and a regular selling stage. The results show that whether to introduce PG heavily depends on the crowdfunding project’s funding target and community benefit. When the funding target is relatively low, the creator can offer PG as an effective substitute for community benefit to achieve crowdfunding success and increase profit, but it is unwise to offer both. That is, introducing PG can simultaneously increase the crowdfunding amount and the two-stage profit in the case of relatively low community benefit. When the funding target is relatively high, the creator will adopt a target-dependent pricing scheme to guarantee crowdfunding success. In this case, PG can increase the upper bound of the funding target but will decrease the profit in most situations. Our results also show that PG can increase both the creator’s and consumers’ payoffs under some conditions. The main findings are verified by means of empirical examples, and some managerial insights are obtained.