Persuasion in crowdfunding: An elaboration likelihood model of crowdfunding performance


Authors paper: Allison, T. H., Davis, B. C., Webb, J. W., & Short, J.C.

Since 2009, crowdfunding and crowdfunding platforms have experienced a high growth in popularity (Google Trends, 2018). Simultaneously, quite a lot of studies have been conducted on this topic. One finding of those studies was the fact that only 36% of the launched projects succeed in reaching their goal (Courtney, Dutta, & Li, 2017). One potential reason for the failure of the majority of the launched projects, is the lack of convincing information and peripheral cues. Allison et al. (2017) study exactly this in the context of the crowdfunding platform Kickstarter. In addition, they also study how attributes of the funders determine the effect of persuasion.

Using the elaboration likelihood model (ELM) of persuasion, the following questions take a central position in the paper: 1) How can crowdfunding entrepreneurs successfully persuade potential funders to provide capital through the use of issue-relevant information and peripheral cues? And 2) How does the motivation and ability of funders influence the way in which persuasion occurs?

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The elaboration likelihood model of persuasion tells us that persuasion happens through two distinct routes: The central route where people evaluate information critically and consciously and the peripheral route where people evaluate the message more affectively based on contextual cues, such as the underlying tone of a given text. In the case of this study about crowdfunding projects, specific concepts are measured to study both routes and their effect on the performance of the crowdfunding campaign. The data for the concepts was collected from 383 crowdfunding projects.

The following concepts represent the evaluation of funders through the central route:

  • The education and experience of the entrepreneur
  • The perceived quality and usefulness of the product

For the peripheral route, the presence of the following cues in the product’s pitch represent the route’s strength:

  • The portrayal of a dream
  • The adoption of a group identity
  • A positive narrative tone throughout the text

In addition, the ability of the funder is measured through their crowdfunding experience (number of funding actions in previous crowdfunding campaigns), and the motivation of the funder is measured through the required funding commitment of the campaign. Commitment was high when someone funded while the lowest-priced reward of a crowdfunding project was above $10, and commitment was low when someone funded while the lowest-priced reward of a project was lower than $10. Both ability and motivation of funders were assumed to moderate the effects of the central route and peripheral route on the crowdfunding performance.

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Findings

After modeling all the variables, only the positive narrative tone of a campaign text did not have a significant effect on the performance of crowdfunding campaigns. All the other variables, related to the campaign text, characteristics of the product and the entrepreneurs, had a significant impact on the success of the crowdfunding campaign. So if the education or experience of an entrepreneur is high, the crowdfunding campaign is more likely to succeed. Similarly, the success of the campaign is positively related to the product quality or usefulness. Lastly, if peripheral cues like the portrayal of a dream and the adoption of a group identity is used in the text, the crowdfunding performance is likely to be higher.

The strength and likelihood of these effects is increased when the motivation and ability of the funder are high, which was validated within an experimental setting in a second study.

Strengths

The primary strengths of this paper relate to the hypothesis development and the study approach. Because so many crowdfunding campaigns fail, it is very good to know about practical approaches that attract more funds. This is exactly what the authors study in this paper. Combining a classic model with emerging businesses provide very useful insights for the field. Related to this strength of the paper, the approach of the authors in hypothesizing is also very good. They develop hypothesis fully based on the theory and past studies, to increase the robustness of their potential findings and to really add value to the academic field as well. Lastly, another strength is the second study that was conducted, that used participants, surveys and an experimental setting. This increases the validity of their findings, as the first study only used scraped data from Kickstarter to model the outcomes.

Weaknesses

Next to the strengths, the paper also has its weaknesses. The most obvious, yet most impactful, weakness is the lack of generalizability due to the data from only one crowdfunding platform. While Kickstarter is one of the biggest crowdfunding platforms, the 383 selected projects and their funding could differ from other platforms in terms of guidelines, funding mechanisms and interface. If other platforms were considered as well, the specifically studied cues could have different forms and consequently, results, than Kickstarter.

A second weakness is potentially influencing the general results of the study. In a crowdfunding platform like Kickstarter, projects can experience unusually high performance when they get featured on a ‘trending’ or ‘what’s hot’ page, as well as when they receive a lot of external  media attention. The authors of this paper have not measured or controlled for these events. Out of 383 projects is it quite likely that one or more of them have received more funding because they were featured on a specific page or news medium. Uncontrolled variables like this cause a decreased causality of the hypotheses, because a couple of these projects with similar entrepreneur education (for instance) could easily skew the results in a way that it reaches significance, while this was not the case if one or two of these projects were dropped  (Type I error). Therefore, the authors should have included more controlling variables that had an impact on the project’s performance.

 

References

Allison, T. H., Davis, B. C., Webb, J. W., & Short, J. C. (2017). Persuasion in crowdfunding: An elaboration likelihood model of crowdfunding performance. Journal of Business Venturing32(6), 707-725.

Courtney, C., Dutta, S., & Li, Y. (2017). Resolving information asymmetry: Signaling, endorsement, and crowdfunding success. Entrepreneurship Theory and Practice41(2), 265-290.

Crowdfunding. (2018). Google Trends. Retrieved 9 March 2018, from https://trends.google.nl/trends/explore?date=all&q=crowdfunding

 Written by Bart – 383128

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