People love crowdfunded products

People are more likely to choose a product (+13% in an experiment) and willing to pay more (+21%) when it’s labeled as crowdfunded.

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📝 Intro

More and more products and startups are crowdfunded.

Almost 20 million people have funded 200,000+ projects on Kickstarter (one of the leading crowdfunding platforms) since its launch in 2009.

$30 billion was raised through crowdfunding in 2015.

So how do people perceive crowdfunded products?

Is it something you should show off, or hide?

Fun fact: Crowdfunding is not new. 

In 1713 Alexander Pope crowdfunded his translation of Homer’s Iliad.

The pedestal for the Statue of Liberty was crowdfunded by 160,000 people in 1885.

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People are more likely to choose and pay more for crowdfunded products

Impacted metrics: Customer acquisition | Customer spending
Channels: Crowdfunding | Product | Marketing communications
For: B2C
Tip type: New research (May 2021)

📈 Recommendation

If possible, try to crowdfund your product (even if for only part of the amount).

Clearly label crowdfunded products as such so that people are more likely to buy them.

🎓 Effects

  • Previous research found that products marketed as crowdsourced (i.e. based on ideas or designs from the public) sell more successfully.

  • This study found a similar effect for crowdfunded products (i.e. products funded, fully or in part, by the public).

  • People are more likely to choose and pay more for products when they know they are crowdfunded. This is because they:

    • Perceive them as higher quality

    • Like that they reduce inequality in the market

  • For example, in experiments, people were:

    • Willing to pay 21% more when a digital notebook was described as crowdfunded, compared to when it had no funding information

    • 13% more likely to choose a backpack if it was described as crowdfunded (59%), rather than venture capital funded (46%)

  • The effect reverses if products involve high physical risk (e.g. a bungee jump rope, climbing equipment) because, in this case, people perceive crowdfunded products as lower quality.

  • The effect is particularly strong for people who care about reducing social inequality.

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🧠 Why it works

  • We perceive crowdfunded products as better quality because we think that:

    • If other regular people decided to invest their money in it, it must be good. This is different from “cheap talk” signals like word of mouth. It’s social proof on steroids

    • The product must be “what people really need” because end users decided to finance it, rather than some distant financial investors

    • Crowdfunded companies must be really dedicated and passionate about what they are doing. Otherwise, people wouldn’t put their money into these underdogs

  • We believe crowdfunded products reduce inequality in the market, and we like that, because:

    • Most people are against inequality. The preference for equality seems to be deeply rooted in human evolution

    • We see crowdfunded firms as smaller and financially weaker than those funded by venture capital. They’re underdogs battling larger firms “with their heart”

    • So we prefer them “just to support the little ones” and level the playing field for them

    • We like the idea of crowdfunding because it gives “a voice to people who would otherwise never even have a chance to seek funding” (and this is true, it improves funding of women founders and in underfinanced regions)

Note: sentences in “quotes” are extracts from in-depth interviews with 28 people

✋ Limitations

  • There are important differences between products labeled as crowdfunded vs crowdsourced. For example, crowdsourced products are seen as worse than professionally designed products when they are highly technical or complex.

  • We don’t know whether a company’s size affects our perceptions. For example, would we prefer a crowdfunded product that comes from a startup (vs a large company), or it doesn’t matter?

  • The form of crowdsourcing (e.g. equity-based, buy the product in advance) shouldn’t change this effect, but this was not directly tested.

  • It’s unclear whether it matters whether many or just a few people crowdfunded the product.

🏢 Companies using this

  • Startups and retailers that crowdfund products don’t seem to be leveraging this effect. Companies rarely label their products as crowdfunded, which means that most potential customers are unaware of it.

  • Monzo, a UK digital bank, crowdfunded £20 million from customers. They offered a special “investor” card to those who participated.

  • In 2016, Amazon launched a section dedicated to Kickstarter products. However, product descriptions rarely directly mention that they were crowdfunded.

⚡ Steps to implement

  • Crowdfunding gives you a marketing advantage, independent of funding financial implications. So when weighing the pros and cons of crowdfunding your product, take this into consideration.

  • Clearly label your crowdfunded products as such.

  • Add a description, when possible, that emphasizes the implications of crowdfunded products (e.g. “People like you decided to bring this product to life by investing their money into it”).

🔍 Study type

Lab and online experiments.

📖 Research

Acar, O. A., Dahl, D. W., Fuchs, C., & Schreier, M. (May 2021). The Signal Value of Crowdfunded Products. Journal of Marketing Research.

[Link to paper]

🏫 Affiliations

Cass Business School, City University of London; Sauder School of Business, University of British Columbia; TUM School of Management, Technical University of Munich; and WU Vienna University. United Kingdom, Canada, Germany, and Austria.

Remember: Because of the groundbreaking nature of this paper, it could be disproven in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

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