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How versioning helps crowdfunding projects succeed

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Intuitively we might easily believe that choice is a good thing, and that the more options we have, the better our decisions tend to be.

It’s a notion Barry Schwartz counters in his book The Paradox of Choice however, where he contends that it’s often far from beneficial to have extra choices.

A recent study from the Rotman School of Management suggests that this may not apply when it comes to crowdfunding.

It suggests that the best crowdfunding projects tend to be the ones that give backers a menu of options and price points that they can choose from.

This is an interesting shift from the norm in crowdfunding, whereby a target is fixed, and the project then lives or dies by the success with which it meets that target within a specified time frame.

The paper found however that some backers may be willing to place a higher value on the project succeeding than others, and are therefore willing to pay more.  This was even more evident if they thought other backers may not be quite so keen.

So, the authors contend that the best strategy is to offer backers a range of options, including both higher and lower priced options for contributing to the project.

For instance, if you’re a music based project, you could offer VIP access to high value backers versus standard tickets for low value backers.

As previous research has shown, if you can obtain some high value contributions early on in the project, this can work incredibly well at attracting other backers to the project who are looking for some social proof before committing to the project themselves.All of which makes a lot of sense, and indeed it is a great example of versioning, whereby prices are personalized for individual customers because they value your product differently.It’s something the noted economist AC Pigou first described in 1920, when he outlined three distinct forms of price discrimination:

    Personalized pricing, whereby you sell to each user at a different priceVersioning, whereby you offer a range of options and let the user chooseGroup pricing, whereby you set different prices for different groups (ie retirees vs students)

The researchers also suggest that project managers may also consider introducing new options later in the campaign in order to maintain their momentum.

If you’re interested in this topic, I can heartily recommend the classic Information Rules by Hal Varian and Carl Shapiro, which devotes considerable time and attention to how information goods can be priced.  It’s nearly 20 years old now but still very relevant.

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