Of Early Birds and Phantoms: How Sold-out Discounts Impact Entrepreneurial Success in Reward-based Crowdfunding

Martin Adam, Michael Wessel, Alexander Benlian

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Reward-based crowdfunding platforms are a promising medium for entrepreneurs to raise funds from a large number of contributors. As a means to encourage contributions early in the life cycle of a crowdfunding campaign, entrepreneurs often choose to offer discounted rewards in limited numbers. Though previous research suggests that scarcity of rewards can increase the chances of success, it remains unclear whether these early bird offers continue to have an effect on the decision making of backers even when sold out, as they remain visible on the campaign’s webpage. Drawing on the theory of the phantom effect, this paper explores (1) how sold-out rewards influence backers’ selection of available options and (2) how the phantom effect may interact with different discount amounts. We conducted an online experiment with 229 subjects simulating the pledging process for a crowdfunding campaign that attempts to raise funds for the publication of a book. Our findings suggest that potential backers choose the undiscounted version of a reward more often, if a discounted, sold-out reward (phantom option) is displayed. This effect is significant when the phantom option has a high discount, but not significant when the phantom option has a low discount. Consequently, in contrast to the traditional perspective that sold-out options negatively impact sales, we suggest that, in reward-based crowdfunding, sold-out rewards may increase the chances of success, if considered and applied strategically. This study therefore offers counterintuitive implications for research as well as for entrepreneurs seeking funds through reward-based crowdfunding.
Reward-based crowdfunding platforms are a promising medium for entrepreneurs to raise funds from a large number of contributors. As a means to encourage contributions early in the life cycle of a crowdfunding campaign, entrepreneurs often choose to offer discounted rewards in limited numbers. Though previous research suggests that scarcity of rewards can increase the chances of success, it remains unclear whether these early bird offers continue to have an effect on the decision making of backers even when sold out, as they remain visible on the campaign’s webpage. Drawing on the theory of the phantom effect, this paper explores (1) how sold-out rewards influence backers’ selection of available options and (2) how the phantom effect may interact with different discount amounts. We conducted an online experiment with 229 subjects simulating the pledging process for a crowdfunding campaign that attempts to raise funds for the publication of a book. Our findings suggest that potential backers choose the undiscounted version of a reward more often, if a discounted, sold-out reward (phantom option) is displayed. This effect is significant when the phantom option has a high discount, but not significant when the phantom option has a low discount. Consequently, in contrast to the traditional perspective that sold-out options negatively impact sales, we suggest that, in reward-based crowdfunding, sold-out rewards may increase the chances of success, if considered and applied strategically. This study therefore offers counterintuitive implications for research as well as for entrepreneurs seeking funds through reward-based crowdfunding.
LanguageEnglish
JournalReview of Managerial Science
Number of pages16
ISSN1863-6683
DOIs
StatePublished - 31 Oct 2018

Bibliographical note

Epub ahead of print. Published online: 31. October 2018

Keywords

  • Reward-based crowdfunding
  • Phantom effect
  • Early bird offers
  • Out-of-stock
  • Scarcity

Cite this

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title = "Of Early Birds and Phantoms: How Sold-out Discounts Impact Entrepreneurial Success in Reward-based Crowdfunding",
abstract = "Reward-based crowdfunding platforms are a promising medium for entrepreneurs to raise funds from a large number of contributors. As a means to encourage contributions early in the life cycle of a crowdfunding campaign, entrepreneurs often choose to offer discounted rewards in limited numbers. Though previous research suggests that scarcity of rewards can increase the chances of success, it remains unclear whether these early bird offers continue to have an effect on the decision making of backers even when sold out, as they remain visible on the campaign’s webpage. Drawing on the theory of the phantom effect, this paper explores (1) how sold-out rewards influence backers’ selection of available options and (2) how the phantom effect may interact with different discount amounts. We conducted an online experiment with 229 subjects simulating the pledging process for a crowdfunding campaign that attempts to raise funds for the publication of a book. Our findings suggest that potential backers choose the undiscounted version of a reward more often, if a discounted, sold-out reward (phantom option) is displayed. This effect is significant when the phantom option has a high discount, but not significant when the phantom option has a low discount. Consequently, in contrast to the traditional perspective that sold-out options negatively impact sales, we suggest that, in reward-based crowdfunding, sold-out rewards may increase the chances of success, if considered and applied strategically. This study therefore offers counterintuitive implications for research as well as for entrepreneurs seeking funds through reward-based crowdfunding.",
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Of Early Birds and Phantoms : How Sold-out Discounts Impact Entrepreneurial Success in Reward-based Crowdfunding. / Adam, Martin; Wessel, Michael; Benlian, Alexander.

In: Review of Managerial Science, 31.10.2018.

Research output: Contribution to journalJournal articleResearchpeer-review

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