Psychology is inherent in crowdfunding. This is because of the nature of the crowdfunding process, strategic business and marketing decisions made by the project creator and the typical characteristics of a backer.
These psychological aspects of the crowdfunding process can also be called behavioural crowdfunding.
- There is information asymmetry in any crowdfunding campaign.
- A backer has a large emotional investment in a crowdfunding transaction.
- Both the crowdfunding platform and project creator uses various strategies to influence backers and the amount pledged.
- Backers are influenced by and contribute to the social information of a project, and can make pledging decisions based on the social information. Social information relates to the number of backers backing a project, funding achieved to date, and number of unlocked stretch goals.
Overview of Behavioural crowdfunding
As backers, we need to be aware of behavioural crowdfunding because this impacts us and how we react to a campaign.
Behavioural crowdfunding consists of these five elements:
- information asymmetry;
- emotion invested in the crowdfunding process;
- features used by the crowdfunding platform to draw in backers;
- features used by project creators to draw in backer;
- influence from other backers, as determined from social information.
Let’s explore each of these.
Information asymmetry is when one party in a transaction has greater knowledge about the product or service compared to the other party. In the case of crowdfunding, project creators always have more information about their vision, idea, and eventual product compared to the backer. The backer relies on communication from the project creator to help reduce the information asymmetry, but only when the backer actually receives the reward, will the backer have full knowledge of the product.
There is also information asymmetry between the crowdfunding platform and the project creator, but to a lesser extent. This is because the online platform acts a community notice board or agent for the project creator.
Because of the large information asymmetry in crowdfunding, emotions and crowd behaviour strongly influences the transaction.
There is an emotional give and take between the backer and the project creator in the crowdfunding process.
The backer is excited to learn about the project creator’s dream and vision to be a change maker and disrupt the market.
The backer builds trust in the project creator and his ability to deliver on his promises, based on the project creator’s emotive communications.
The backer supports the project creator and in return, expects respect from the project creator.
Because a backer has an emotional investment in the crowdfunding process, the backer amplifies his reaction to any action or non-action from the project creator. If the project is amazing, then the backer’s enthusiasm is unlimited; if the project creator fails to deliver, the backer’s scorn is unlimited.
The main drawing card of crowdfunding is that backers want to share the experience of launching a new product with the project creator. We want to rejoice in your successes, and support you during manufacturing delays. This makes the crowdfunding process different compared to a standard sale via Amazon; the average customer doesn’t have such a strong, binding emotional investment when making a purchase online.
And I think this is what some project creators miss during their campaigns: they forget that about the emotional investment from the backers. In all the better campaigns I backed, the project creator acknowledged this emotional investment, listening to the backers, interacting with them, and making the overall backing experience enjoyable.
Features used by the online platform to tug at backers’ emotional strings
There are three key features that Kickstarter use to encourage backers to pledge. These are:
1) The all or nothing approach from Kickstarter, in that the project creator only gets the funds if the campaign is successfully funded. Other crowdfunding platforms give any pledged amounts to the project creator, whereas Kickstarter has a firm all or nothing approach. This has a subtle effect on the backer as this tactic plays at the back of your mind when reviewing the project. Additionally, the project creator uses this as an emotional weapon to appeal to backers.
This tactic from Kickstarter is a boost in the last 48 hours 48 hours of a project, especially if the project is so close to funding. All backers know that it is all or nothing; accordingly backers will increase their original pledges or promote the project more vigorously on behalf of the project creator.
2) Staff picks of projects. Sometimes the staff picks look totally randomly generated, other times the staff picks seems more targeted to my browsing history. Because this is a recommendation list from Kickstarter, there is a high likelihood that backers will review and consider the projects.
3) Use of Amazon Payments. As a backer, seeing the Amazon brand at the end of most crowdfunding transactions instills a sense of confidence in the process. The Amazon brand shifts the perception of the transaction from a crowdfunding one to a sale one, which has the added benefit that a backer will think longer and harder before cancelling a pledge. For the backer, it seems as if Amazon endorses the transaction, offering all the security of buying through Amazon. But Amazon is only used to process the payments!
Because of the ease of use of the online platform, coupled with the features listed above, once a backer is on Kickstarter, it is difficult to disengage from the crowdfunding process, to think rationally about the amount being pledged or the number of projects being backed. But, keep in mind that Kickstarter’s approach is no different to the carefully thought out layout of the fashion retailer or grocery shop, or well designed layout of an internet site.
Features used by project creators to tug at backers’ emotional strings
The more experienced project creators are attuned to how to emotionally engage the backer and encourage the backer to pledge. This can be seen throughout the lifecycle of the campaign, but is more evident in the first and last 48 hours of the campaign.
In the first and last 48 hours of the campaign, the emotion intensifies, and accordingly, so does the appeal from the project creator.
In the first 48 hours, a project creator will use:
- early bird specials in reward levels to attract backers;
- either the pity speech “this is my first Kickstarter” or the confident speech “I have successfully created multiple Kickstarter campaigns”. Each speech appeals to different emotional sides of the backer: the first appeals to the support from the backer, the second to the trust.
In the last 48 hours, a project creator will use the emotional appeal of the:
- stretch goals, namely that backers have invested so much already to get the core product plus some stretch goals; a little bit more will unlock even more stretch goals.
- countdown clock, reminding backers via comments and updates how many hours and minutes are left for the campaign. This reduces the bystander effect, influencing backers who were undecided about backing a project to make a decision. And under the time pressure, backers would more likely back a project in the last 48 hours.
The first and last 48 hours are analogous to attending a sports game, gambling in a casino or watching a stock price during the day. There is a lot of adrenalin pumping, and even though the backers are sitting at home, watching the project via a device, each and every backer is more emotionally attached and engaged during those two peak times for a project. This is because, as a backer, you either want to be the first on the bandwagon, or help push the project over the funding finishing line.
Influence from other backers via social information
Lastly, as a backer, I am influenced by other backers on my decision to back a project. This is a combination of mob mentality or herding effect with a diffusion of responsibility.
The mob mentality or herding effect is apparent when the product displayed on the project page is in high demand and via reactions to the social information. New backers seeing a lot of activity on one project page may be tempted to pledge even through they would never have considered the project otherwise. Existing project backers may be cajoled into increasing their pledge by fellow backers or the promise of unlocking more stretch goals.
The diffusion of responsibility comes about because experienced backers constantly analyse whether they should increase their pledges or wait for new backers to pick up the funding responsibility. Additionally, because of the increasing reward tiers, backers at the higher, more expensive reward tiers heavily subsidize backers at the lower reward tiers, in that the backers of higher reward tiers make a larger contribution to the funding goal and whether stretch goals are unlocked.
In general, there are three key numbers that influence every backer considering a project, over and above the commentary from backers in the Comments section of the project page, . These numbers are the:
- ratio of backers to funds pledged;
- number of unlocked stretch goals, and to a lesser extent, the number of unlocked social media goals.
Backers carefully monitor the funding goal, whether it has been reached, what the trend on Kicktracks is, and what is the overall movement of the funds.If the funding goal has been reached, and the funds continue to steadily increase, the original backers are more likely to increase their pledges to unlock more stretch goals whereas new backers would only back the project if the product appeals to them.
On the flip side, just like there can be a run on a bank, there can also be a run on a project. This is seen when backers start to cancel their pledges for a project that has not yet been funded. Backers immediately see the decreasing funds and react accordingly.
The number of backers for the pledged amount is also used by backers to gauge the project and other backers’ interaction with the project. For example, if there is a low number of backers, but the funding goal has been reached, then obviously the backers are closely linked to the project creator, and these backers are pledging more than the price in the reward levels. If the number of backers is disproportionately large compared to the funding, then backers are pledging at the lower reward levels to wait and see what will happen to the project. Backers feel more confident in a project in the Goldilocks case – when the number of backers and level of funds feels “just right”.
Lastly, the number of unlocked stretch goals also tends to encourage backers to review their pledges and if the locked stretch goal becomes achievable, then the backer would be more likely to pledge more to help unlock the goal. The premise here is simple: the backer has already put money down for the project, and it is in his interest to get the best product possible, and the product quality tends to improve via the stretch goals. New backers, interested in the product, would jump on the bandwagon to get the best product here. New backers, in this case, would be riding on the coat tails of the existent backers, benefiting from the all the funds pledged and interaction between the original backers and the project creator on how to improve the product or the campaign.
Given this emotional appeal of the stretch goals and what it could imply for the final funding number, it amazes me when I see desktop wallpaper, for example, offered as the highest stretch goal, or stretch goals that are not achievable nor revised for the funding campaign. Bad use of stretch goals is a missed opportunity for the project creator, with a knock-on effect for the backer, in that the backer can’t get the best product available.
There are a fair number of emotional aspects to the crowdfunding process, which can hinder and help both the project creator and the backer.
As a backer, it is imperative to pay attention to the behavioural crowdfunding, and what the impact each of the elements discussed is. Know what your budget is, research the project creator, read reviews on external forums. Arm yourself against this emotional tidal wave inherent the crowdfunding process.