The impact of sold-out early birds on option selection in reward-based crowdfunding

Abstract

To incentivize early contributions in reward-based crowdfunding, project creators frequently offer reward options in limited numbers, of which the “early bird” is one of the most prominent. Early birds offer the same rewards as an alternative option, but are reduced in price. Although studies suggest that scarcity can influence backers' decisions, research lacks knowledge of whether early bird options impact backers' decision-making once these options are sold out but still visible to potential contributors. Drawing on the phantom effect theory, this multi-method study investigates (1) how phantom alternatives impact backers' selections of available options, and (2) how the phantom effect interacts with different levels of discount and social proof. Our results from an online experiment with 512 participants and a longitudinal observational study based on 676 crowdfunding projects reveal that phantom options make backers choose the equivalent but undiscounted reward option more often. This effect is stronger with a moderate amount of discount for the early bird option rather than a high one. Moreover, social proof (i.e., number of backers who have chosen the early bird option) interacts with the discount amount in that higher levels of social proof weaken the relationship between the amount of discount and the phantom effect. These results show that, contrary to the traditional offline retail perspective, where sold-outs usually hurt sales, sold-out early birds may help in increasing funding revenues in reward-based crowdfunding, if employed strategically. Thus, we provide counterintuitive learnings for research as well as fundraisers looking for capital through reward-based crowdfunding.