Short answer

When developing innovative products, assess the potential for organic word-of-mouth to support a crowdfunding campaign, particularly if the project faces higher inherent risks.

Field: Innovation & Markets
Source: Foundations and Trends® in Technology Information and Operations Management (2022)
Method: Theoretical modeling and comparative analysis
Evidence: Strong effect

Firms launching innovative products are more likely to choose crowdfunding when word-of-mouth communication is active, as it enhances product awareness and can offset lower success probabilities. This innovation & markets research insight is drawn from a 2022 study published in Foundations and Trends® in Technology Information and Operations Management. Using Theoretical modeling and comparative analysis, researchers explored how this design variable affects real-world outcomes. The key design takeaway: When developing innovative products, assess the potential for organic word-of-mouth to support a crowdfunding campaign, particularly if the project faces higher inherent risks.

Study

Innovation & MarketsHigh ImpactStrong effect

Crowdfunding adoption increases with word-of-mouth activity

Firms launching innovative products are more likely to choose crowdfunding when word-of-mouth communication is active, as it enhances product awareness and can offset lower success probabilities.

Foundations and Trends® in Technology Information and Operations Management · 2022

Key Findings

01Crowdfunding is a preferable funding choice when a project's success probability is below a certain adoption threshold.
02More active word-of-mouth communication always benefits the firm and favors crowdfunding.

Application

Design takeaway

When developing innovative products, assess the potential for organic word-of-mouth to support a crowdfunding campaign, particularly if the project faces higher inherent risks.

How to apply

When planning a new product launch, analyze the expected word-of-mouth potential and compare it against the risk profile of the project to inform the choice between crowdfunding and traditional financing.

Project actions

01Consider how your design project's communication strategy could influence its funding.
02Research how word-of-mouth affects the adoption of similar products in the market.

Method & Evidence

AimTo determine the optimal funding choice (crowdfunding vs. traditional bank financing) for a firm launching an innovative product, considering the impact of word-of-mouth communication on product awareness and success.

MethodTheoretical modeling and comparative analysis

ProcedureThe research models a firm's decision-making process for quality and pricing strategies under both crowdfunding and traditional bank financing, incorporating the effects of word-of-mouth communication. It then compares the outcomes and welfare implications of each funding choice.

ContextNew product launches, innovative markets, funding strategies

Variables

IVWord-of-mouth communication activity, project success probability

DVFirm's optimal funding choice (crowdfunding vs. bank financing), quality and pricing strategies

CVInnovative product launch context, firm's objective to raise funds and expand awareness

Strengths & Limitations

Strengths

+Provides a theoretical framework for understanding funding choices in innovative markets.
+Highlights the strategic importance of word-of-mouth communication.

Limitations

This research is theoretical; real-world crowdfunding success also depends on platform choice, campaign execution, and community engagement.

Reliability & validity

The theoretical model's reliability depends on the robustness of its assumptions. Validity would be assessed by comparing its predictions against real-world crowdfunding data.

Think critically

How might the *type* of innovation (e.g., incremental vs. disruptive) affect the relationship between word-of-mouth and crowdfunding preference?

Design Principles

"Leverage communication channels to mitigate perceived risk in innovative product funding."

This insight is crucial for businesses considering funding strategies for new products. Understanding the interplay between funding mechanisms and marketing communication can lead to more effective product launches and resource allocation.

What This Means for Your Design

If you're making something new and it might be a bit risky, using crowdfunding is a good idea, especially if people are likely to talk about it a lot. The more people talk, the better crowdfunding works.

How to use in your project

1.Reference this study when discussing the strategic choices for funding a design project, particularly if it involves innovation and relies on market buzz.

Add to My Project

Quick Cite

Paragraph starter

Research indicates that crowdfunding adoption is positively influenced by word-of-mouth communication. For innovative projects with a success probability below a certain threshold, crowdfunding emerges as a preferable funding strategy, especially when active word-of-mouth marketing is anticipated, as it aids in product awareness and can mitigate funding risks.

Source

Foundations and Trends® in Technology Information and Operations Management

Crowdfunding Adoption in the Presence of Word-of-Mouth Communication

journal · 2022

View source

Questions About This Research

What does the research say about crowdfunding adoption increases with word-of-mouth activity?: When developing innovative products, assess the potential for organic word-of-mouth to support a crowdfunding campaign, particularly if the project faces higher inherent risks. Evidence: Foundations and Trends® in Technology Information and Operations Management (2022).
Why does "Crowdfunding adoption increases with word-of-mouth activity" matter for design?: This insight is crucial for businesses considering funding strategies for new products. Understanding the interplay between funding mechanisms and marketing communication can lead to more effective product launches and resource allocation.
How can designers apply this research?: When developing innovative products, assess the potential for organic word-of-mouth to support a crowdfunding campaign, particularly if the project faces higher inherent risks.
What were the main findings?: Crowdfunding is a preferable funding choice when a project's success probability is below a certain adoption threshold.. More active word-of-mouth communication always benefits the firm and favors crowdfunding.
What research method was used?: Theoretical modeling and comparative analysis.
How strong is the evidence?: Evidence strength is rated Strong effect, based on a 2022 journal from Foundations and Trends® in Technology Information and Operations Management.
What should I do differently in my next project?: When planning a new product launch, analyze the expected word-of-mouth potential and compare it against the risk profile of the project to inform the choice between crowdfunding and traditional financing.
What are the limitations?: The model is theoretical and may not capture all real-world complexities of crowdfunding dynamics or diverse market conditions.