July 22, 2015
Crowdfunding: Not just for Kickstarter anymore
Through a special arrangement, what follows is an excerpt of an article from Retail Dive, an e-newsletter and website providing a 60-second bird’s eye view of the latest retail news and trends.
In 2012, Kickstarter published a blog post reiterating that the site "is not a store." The funding site emphasized to project’s supporters that the final product won’t necessarily live up to expectations, or even ever appear.
Despite that stipulation, Kickstarter has clearly ignited a new way to conduct e-commerce. In fact, retailers have taken notice: in June Etsy began piloting a crowdfunding feature to help its sellers raise money to expand their businesses and Amazon has included a crowdfunding feature as part of its Exclusives storefront.
But it isn’t just small sellers such as those taking advantage of marketplaces like Etsy and Amazon (or using Kickstarter itself). San Francisco-based crowdfunding and e-commerce platform Celery enables retailers of many stripes and sizes to facilitate pre-orders and/or crowdfunding on their own sites.
"We’ve talked to many larger brands that want to bottle the magic of Kickstarter while maintaining control of their brand," Celery CEO Chris Tsai told Retail Dive. "Similarly there are many venture-backed startups that want the experience of purchasing to be their own experience. So they want to launch their products themselves instead of using Kickstarter."
Source: trycelery.com
Although some use the terms interchangeably, pre-orders, by contrast to crowdfunding, include a promise for delivery of goods. If the retailer doesn’t collect enough orders to justify manufacture of a vendor order, the money is returned.
A Kickstarter campaign makes sense for smaller artisans or entrepreneurs trying to realize a dream or make an idea happen. But more established companies aren’t interested in ceding control of their brand or their logistics to a platform like Kickstarter, PayPal or Amazon.
Still, a crowdfunding approach can help companies like Pebble or even larger ones like Disney and Timex, who have worked with Celery to crowdfund certain products, to determine whether they need 6,000 or 60,000 in inventory.
"ThinkGeek is a pretty innovative company, and similar to Disney Maker Studios, they’re saying, ‘Why should I keep guessing about how much inventory to buy, when I could have my customers tell me?’" Mr. Tsai says. That retailer, recently acquired by GameStop, is using a preorder system for its Star Trek Bluetooth Communicator; whether anything emerges will depend how many Trekkies put up their money.
Finally, a crowdfunding or preorder approach is a way to bring loyal or "VIP" customers in on a project or new product early. And the "tease" of a crowdfunding campaign can stimulate interest in a product as well as measure it.
"Some retailers are realizing it’s a powerful marketing mechanism," says Mr. Tsai.
Discussion Questions
What do you think of crowdfunding or pre-ordering as a demand tool, whether for overall inventory requirements, product launches or potential store sites? Would such a tool work as much for established companies as for start-ups?
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Christopher P. Ramey
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Crowdfunding could be a tool to launch a product and project initial inventory needs. It is a gauge of initial consumer interest, allowing manufacturers to take initial steps to launch products. And it could work for companies large and small. Brands no longer need to plan and budget for national launches. A limited launch on a crowdfunding site could then be followed by a national effort or could lead to a product being delisted. I’m always amazed by the ingenuity that is fostered by the Internet.
The other thing that these crowdfunding sites do is generate an advocacy base before the product launches and this is a critical element. Birds of a feather flock together and people with a driving passion for a product driven enough to fund its very creation are likely going to actively market it to their networks.
I’m wearing on my arm a beta version of a wearable that passively tracks my calories, fat, carbs intake/burn rate as well as stress level, steps taken, sleep quality, heart rate and any abnormalities related to the above. Passively. I would not have known such an amazing product existed had it not been for Indiegogo. And the 12 years it took to create it may not have resulted in a for-market product had it gone through the traditional retail path.
Using these platforms as a demand tool seems like a perfect way to get retailers to give emerging products like this one a fighting chance to get on their shelves. It’s a win-win for everyone!
I think this is a great idea as long as the end product lives up to the hype, otherwise the retailers may take the blame. The retailers should also look into making the product exclusive on their site for a period of time after launch to lock in the benefits.
It all looks great from the outside. According to Statistics Patrol, “as of April 2015, the success rate of fully funding a project on the crowdfunding website was 38.46 percent.” Furthermore, if you fail, your project stays on the site forever making you a loser until the end of days. What alarms me is how many of these apparently innovative products don’t even exist. It if weren’t for CAD, Kickstarter wouldn’t have much to offer.
Crowdfunding operates much like software developers: “the final product won’t necessarily live up to expectations, or even ever appear.”
What are more interesting and more impactful, IMHO, are the equity-based fundraising sites. The SEC is slowly changing the rules to allow non-accredited investors to support early-stage ventures. Still there’s an odd contradiction: all kinds of rules preventing Granny from investing her money in someone’s company, but she is totally free to throw it away in Las Vegas and no one cares.
There is a similar service for the e-book/publishing industry allowing authors to crowdfund/pre-order their upcoming book before the book is complete to gauge interest beforehand.
Retailers should have a way to tap into this data to share information available to their customers of prototypes and upcoming products — it is not unusual for buyers at an auto dealer to talk shop about a future car model only to end up buying the current year’s model.
Interesting. Some of us would call it selling Vaporware. And the FTC has serious concerns about “dry testing,” a direct mail practice.
I recently wrote about the very large Kickstarter failures and why we shouldn’t be surprised … Suggesting retail reality would be helpful for Kickstarter.
As to established players using it to sell? Maybe clever. But maybe not. I think the issue will be what we CAN’T anticipate at this time.
Crowdfunding takes Google’s business model to the next level. First and foremost is to provide shoppers with what they want and value — then figure out and establish the business model that will fund the venture. Everyone takes pride in ownership. Once you establish that personal ownership through crowdfunding, the other amazing phenomenon is that we want to tell everyone about our participation. The combination of personal ownership, pride and the ability to share it with the digital world is a very powerful formula.
Retailers and established brands should take note and definitely explore this process. Many brands invest in and create private label products. Why not use the crowdfunding formula to create customers and pre-orders? Recording artists (Taylor Swift) and authors (Harper Lee) are using this technique very successfully. Why not Home Depot or Lowe’s for smart-home technologies?
Crowdsourcing and its derivatives can be a very powerful shopper marketing tool as well as a fiscally sound business practice.
Simply a ploy to ensure control over initial production run sales and deployment. Public interest and initiative is a secondary consideration to finding a home for the merchandise coming off the boat or third-party production line. this is equally risky for both start-ups and established firms without adequate in-house marketing.
The buyer in me loves this. Inventory that is essentially pre-paid? Uh, yes please. But this can’t work for an assortment or regular everyday goods. Clever, innovative, good design platforms (awesome t-shirt sites like Betabrand) that allow individuals or small groups to produce high-quality goods are great.
For larger established brands it seems that if this tactic were employed, it would have to be couched as a collaboration with a smaller or parallel organization — think West Elm’s collab with Pratt design school a few years ago — or a charitable campaign.
Whether Kickstarter likes it or not, crowdfunding has become an important form of market research. Indiegogo has accepted that fact and developed its site to enhance it, as I reported here: Crowdfunding Is Not a Scam, It’s Market Research – Bloomberg View
I love the idea of crowdfunding to see if a product is viable and might sell. “Might” is the operative word here. If the description is wrong, and few people, if any, buy, it may be as much a function of the way the product is positioned. Still, it is a great opportunity worthy of consideration.
It would make sense that those visiting these sites are “advancers” and understand the risk. Leveraging insights from viable resources, regardless of how it is presented, is invaluable.