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Scarcity Strategy in Crowdfunding: An Empirical Exploration of Reward Limits

Lusi Yang (), Zhiyi Wang () and Jungpil Hahn ()
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Lusi Yang: Management Information Systems, Eller College of Management, The University of Arizona, Tucson, Arizona 85721
Zhiyi Wang: Organizational Leadership and Information Analytics, Leeds School of Business, University of Colorado Boulder, Boulder, Colorado 80309
Jungpil Hahn: Information Systems and Analytics, School of Computing, National University of Singapore, Singapore 117417

Information Systems Research, 2020, vol. 31, issue 4, 1107-1131

Abstract: Scarcity-based marketing strategies have been widely embraced to communicate the potential unavailability of an item to increase sales. Recently, a similar practice has been prevalently implemented in reward-based crowdfunding in the form of reward limits, whereby campaign creators restrict the number of backers for each reward tier. Whereas most current research has focused on the design strategies of crowdfunding campaigns, less attention has been paid to how campaign design implicates backer-as-consumer needs in reward-based crowdfunding. Drawing on the marketing literature regarding product scarcity and consumer psychology, the current study strives to fill this void by uncovering the effect of reward limits on eventual and concurrent funding performance. Specifically, we performed campaign-level and campaign day–level analyses on a unique data set from a dominant crowdfunding platform. At the campaign level, we determined that setting reward limits at the beginning of a campaign is beneficial, with the number of limited reward tiers exerting an inverted-U-shaped relationship with campaign performance. Further exploration of different forms of reward limits suggests that the scarcity effects largely originate from limited edition and price discount rewards. At the campaign day level, we determined that incorporating new limited edition rewards is helpful for attracting new contributions, whereas depleted price discount rewards will demotivate subsequent contributions. In addition, the goal-directed mechanism in crowdfunding plays an influential role in shaping scarcity effects. Our findings highlight the importance of considering backer-as-consumer needs in campaign design and the dynamics of campaign attribute changes in the fundraising process. The goal-directed mechanism in crowdfunding allows us to add further insights to the marketing literature on product scarcity by considering a noneconomic component of the scarcity effect. Our findings also provide important practical implications for platform operators, campaign creators, and marketers.

Keywords: scarcity strategy; crowdfunding; reward limits; exclusivity; economic benefits; consumer psychology (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:inm:orisre:v:31:y:2020:i:4:p:1107-1131