Crowdfunding: Designing an effective reward structure

Abstract

Many crowdfunding platforms allow developers maximum flexibility in terms of the number and types of rewards offered in a project. However, designing an effective reward structure continues to be a major challenge. This article empirically examines consumers’ responsiveness to different factors related to reward structures on crowdfunding platforms. We collected data from 2,262 rewards programs across 219 projects and applied a mixed Tweedie model to investigate the impact of various reward structures on the number of backers and the revenue generated at each reward tier. The results revealed a significant effect of reward limit setting on backers’ interest, but this effect varies by reward tiers. Higher tiers attenuate price sensitivity. The reward type matters as well: material rewards are better received than symbolic ones on crowdfunding platforms, but only in lower reward tiers. These findings have direct implications for launching crowdfunding projects that will be more effective in creating buzz and reaching their fundraising goals.