More Options, More Money

IN TRADITIONAL MARKETS, offering consumers too many options can lead them to purchase nothing at all.

In crowdfunding, however, the more options and price points consumers have to choose from, the more they tend to contribute, according to a study by three researchers at the University of Toronto’s Rotman School of Management in Canada. They include Ming Hu, assistant professor of operations management; Xi Li, a doctoral student; and Mengze Shi, associate professor of marketing.

Creators of typical crowdfunding campaigns inform people of their projects, post fundraising targets, and work to reach those targets by set deadlines. If their targets are not reached, any contributions made by funders—whom the researchers call “pre-buyers”—are refunded.

When campaigns set a range of higher-priced incentives (such as a VIP pass to a concert) and lower-priced incentives (a regular ticket), early pre-buyers may opt for the higher-priced option. The reason? They want the project to succeed, and they fear that others might not pay as much. By offering high-end pre-buyers a reason to commit early, campaigns also attract pre-buyers who are waiting for others to participate.