Early bird or versioning: Which pricing strategy is better for creators in reward-based crowdfunding?

Abstract

Purpose

Crowdfunding, especially reward-based crowdfunding, has quickly evolved into a commonly used vehicle for innovating entrepreneurs to develop their products. Many crowdfunding platforms allow creators maximum flexibility in terms of the prices and rewards offered in a project to gain sufficient capital. However, creators need to understand how to design project rewards and how to select a pricing strategy, in addition to whether the creator should spend resources on designing multiple rewards of varying quality. The purpose of this paper is to address these issues by answering whether and why there are significant differences in the application of early-bird and versioning pricing strategies in crowdfunding.

Design/methodology/approach

This paper develops a two-stage dynamic game model with incomplete information, proposes a corollary calculated by analyzing a perfect Bayesian equilibrium, and then tests Corollary 1 by empirical analysis.

Findings

Contrary to the findings of other studies, the results show that an early-bird pricing strategy is likely better than a versioning pricing strategy for earning greater revenue in a crowdfunding context, on average. This finding means that creators do not have to spend as much in designing rewards of various qualities; rather, they should only provide multiple price options for high-quality rewards. However, if the heterogeneity of target backers’ valuations and the quality difference between two types of products are adequately high, a versioning pricing strategy may be a good choice for creators.

Practical implications

This paper provides a reference for creators regarding the selection of pricing strategies and the design of reward quality when launching crowdfunding projects.

Originality/value

This paper explains an interesting and practical issue in the design of reward quality and the selection of a pricing strategy after fully considering the role of the crowdfunding all-or-nothing mechanism and special backer behavior.

Citation

Chen, M., Liu, Z. and Ma, C. (2020), "Early bird or versioning: Which pricing strategy is better for creators in reward-based crowdfunding?", Asia Pacific Journal of Marketing and Logistics, Vol. 32 No. 3, pp. 769-792. https://doi.org/10.1108/APJML-12-2018-0529