Reward-based crowdfunding attracts many investors as many entrepreneurs, not without reason. The volume raised through this type of crowdfunding in 2016 was estimated at USD 2.08 billion in Asia-Pacific (The 2nd Asia Pacific region alternative finance industry report, 2017). It is a good opportunity for backers to have goods or services at a discounted price, before everyone and/or limited editions. To know what a project initiator can achieve through crowdfunding in Japan, click here!
Types of reward
For this model, there are three types of reward:
- Pre-order: the initiator offers his product before its release.
- Service: the initiator offers a service in exchange for the money raised.
- Recognition: the initiator thanks his backer, sometimes with a small gift related to the campaign.
Of course, the reward offered will depend on your project and on the amount of money backers will give to support you.
This concept became mainstream with the global platforms Kickstarter and Indiegogo. In Japan, the best known platforms are Green Funding, Makuake and Campfire (check out our article here for more details). However, even though launching a new campaign looks really attractive, you need to know a few things before anything else. Let’s start with the advantages and disadvantages of reward-based crowdfunding.
- It is an effective way to raise funds without asking for a lender.
- You directly reach consumers, who buy your product or service before the public knows about it.
- It is good publicity for your company, people become familiar with your brand and what you sell.
- You can gather even more money than you initially wanted to and can consider stretch goals (improve your product and/or give more to the backers to attract new customers).
- You can create many campaigns, and when the deadline is reached you have the possibility to start your campaign on another platform.
- You focus on demonstrating to people that your product is legitimate and high-quality, it is less of a traditional advertisement campaign.
- Small startups succeed more than big companies, you do not need any previous business experience nor a huge workforce.
- It is a cheap means to raise capital, but it costs time (a lot of time). You do not offer a monetary reward, as in the case of investment.
- You can lose credibility if you do not (or not fully) deliver the service or good, or if the delivery is extremely late.
- The rate of success can be pretty low depending on the platform (Kickstarter: less than 40%).
- Even if you succeed, other problems can occur at the end of the campaign: wrong calculation, lack of workforce, a system not good enough, the demand exceeds what you imagined it to be, etc.
- It seems easy to raise funds when we see all the successful campaigns, but note that they are well promoted on the platforms. Usually, companies do not raise a lot.
- The platforms do not accept all the projects (depending on the site).
- It takes a lot of time: you have to plan everything before starting a campaign to attract more people and to be sure that your project is feasible.
- It is a different type of marketing: it is not the same marketing that with traditional lenders or when you want to sell a product already launched. You must manage multiple social media channels, sometimes a blog, the target is not the same (backers do not have the same need that traditional customers), etc.
- It is stressful: there is a deadline, you have to be present on social media, to share updates regularly, to reply to backers as much as possible, to deal with unexpected problems…
- It requires a lot of resources (workforce, campaign promotion, campaign tracking, charges, etc.).
- It is sometimes difficult to reach the target audience, you have to bank on communication.
How to Succeed
Now that you know more about the pros and cons of reward-based crowdfunding, the most important is: how to succeed?
First, you have to choose the right platform. You can compare the three main crowdfunding platforms in Japan here. We recommend Green Funding, which has a significant success rate (89%) with an average amount of support: 3.4m JPY, the highest level in the industry. The team focuses on the success of your campaign, unlike other platforms, and is very supportive.
But to choose the right platform for you, you should look at the costs (the charges can range from 5% to 13% depending on the site). Include it in your calculations, as well as the initial cost of the platform, the price of manufacturing, of shipping, etc. Your target amount must be fair, you can even explain it to your potential supporters to earn credibility. Transparency is the keyword to get people trusting you and backing you.
You have to understand the crowd, what people need and what people want. Try to see things as backers do, do your research about reward-based crowdfunding supporters (their psychology, how they can use your products and why they should use yours, for example). People, many people, must be willing to back your project, so show them the best reasons to do so!
It is also essential to advertise your campaign, with press coverage or KOL (like influencers) – it is a good investment. Do not neglect the communication part! Be present, create special social media channels, a blog, a website, build your network, use your friends’, family’s and colleagues’ network and make your product known. Make frequent updates, by emails and on your channels, reply to backers’ questions or potential questions in your pitch and in an FAQ. Also, put images and videos of your product (with descriptions based on scientific facts, if possible) to attract new supporters. You can ask an agency to help you becoming known, to support your campaign and attract customers (like with campaign tracking) if you do not have enough visibility after a certain time – or right at the beginning, depending on what you want.
Above all, incite backers to share your campaign on social media: word-of-mouth will help you a lot. It is how you will succeed. For that, give them incentives: offer them exclusivity (your product should not be already available in the country you are targeting), limited editions, discounts… People are more eager to buy your good or service if it is presented as an opportunity, and as valuable to them. Offer several options for your rewards and differentiate big, small, early and late donors. You can also check other projects (not to imitate them but to do better) and if no similar project is posted on the platform. If there is, wait a few weeks or months, or use another platform.
If you need help to enter the Japanese market, get in touch with us! Whether you need a strategy or assistance with your new innovative product, we provide value for your new product launch in the Japanese Market. We offer Crowdfunding Support and Digital Marketing Services, all under one roof. You can contact us here.
Reference www.sciencedirect.com/science/article/pii/S014829631930373X#bb0245 www.sciencedirect.com/science/article/pii/S2444569X16000123 a2fcornwall.co.uk/top-10-tips-for-reward-based-crowdfunding/ core.ac.uk/download/pdf/38134143.pdf fundchaser.com/crowdfunding/pros-cons-of-all-types-of-crowdfunding/ www.nerdwallet.com/blog/small-business/reward-crowdfunding/ milaap.org/stories/reward-based-crowdfunding