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Essay: Crowdfunding and social media

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  • Subject area(s): Marketing essays
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  • Published: 11 November 2022*
  • Last Modified: 22 July 2024
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  • Words: 3,435 (approx)
  • Number of pages: 14 (approx)
  • Tags: Social media essays

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According to a recent UK study by Statista (2018), “As of January 2018, the total number of active social media users amounted to 44 million, which equates to a total of 66% of online social media attraction in the UK alone’. Additionally, the “Total Transaction Value in the Crowdfunding segment amounts to £66m in 2019” in the UK (Statista, 2019). Both statistics have increased each year and are intended to continue their rapid increase through into 2023 where the total transaction value in crowdfunding is estimated to reach a staggering 91m. Interestingly, in a smaller study I have attempted to verify the increasing impact of social media and its ubiquitous nature. Figure 1 (Hawkins, 2018) shows that over 80% of students between the age of 16 and 24 have a social media app downloaded on their phone. Also, Figure 2 (Hawkins, 2018) shows that of these media app users, 90% + download Facebook, 80% Instagram and 75% Twitter.

This article discusses how the influx in popularity for crowdfunding sites mixed with social media is a natural combination and, together, can influence the potential for both old and new ideas to thrive. I will further discuss how social media has grown to become universally available, and is arguably the most effective advertising media today. This, therefore, suggests that brand marketing should utilise social media to achieve the greatest impact on potential customers. I shall argue in this study that successful outcomes could lead to an increase in brand loyalty and customer retention.

I believe social media helps brands communicate on a personal level with their audience, promoting instant appeal. I think it is an ideal partner with crowdfunding. This combination is particularly useful for creative projects in the design industry, providing greater impact on the audience and creating greater global awareness. I intend to argue over the following pages why crowdfunding is great for entrepreneurial creatives that want to share their ideas and projects through social media.

Cooper (2018) describes the most important form of advertising in the new generation: “as of 2018, there are 3.196 billion people using social media on the planet, up 13 percent from 2017 to 2018”, and that “on average, 50 percent of people use Facebook daily, while only 39 percent watch television”. This is a huge incentive for brands to start using this form of marketing to increase traction in their crowdfunding campaigns.

Social media has already built huge reputations for companies like Nike who have surpassed 150 million followers as a collective on Facebook, but they are a company who uses their own following for promotion of the products they are releasing. As alternatively, Social media can be used to boost the opportunity to source capital via crowdfunding sites. The trend of social media communication will continue due to its instant-response culture, and this can help promote the success of a campaign on a crowdfunding site. Directing an already established following to a project can be the catalyst for other investors to also participate. So, how can social media help communicate to audiences for the benefit of a crowdfunding project, and will it always succeed?
Firstly, crowdfunding is not a new concept; it has existed for years with people doing it within their own groups and communities for events, constructions and charities etc. However, it has gradually become a popular source of funding for new ideas and projects on a digital platform that is easy to use, quicker, more accessible and global. Tice (2019) concisely states that “Crowdfunding is the raising of small amounts of money from a large number of individuals”. This method of accumulating capital has opened up the market to help anyone gain investors to fulfil their objectives. I mentioned at the beginning that the “Total Transaction Value in the Crowdfunding segment amounts to £66m in 2019” (Statista, 2019); this only applies to the UK but indicates a far greater magnitude when considered in worldwide terms. The crowdfunding industry has exploded in that global crowdfunding became a $7.5 billion industry in 2018 and is only set to increase.

A crowdfunding site, such as Kickstarter, provides a platform for the pitching and presenting of well-developed ideas that require further community backing. There are usually three different models that are used as incentives to promote investment for an idea – Rewards, Lending, and Equity.

Rewards-based crowdfunding provides the offer of a user’s capital in exchange for a reward, for example allowing the backer to be the first to receive the item, get a percentage off the product before it is released or even extra add-ons to the product it is building. This model allows you to essentially take pre-orders for your project, meaning no debt, only the pressure of delivering the rewards offered.

Equity-based crowdfunding means that you will be handing over a percentage of the company, and will not be 100% in control, in return for receiving the start-up capital that is needed. This is most commonly known as a trade of stock shares in the company which could subsequently increase or reduce in value. People are more likely to invest if they think the idea is strong and that it will garner a good Return of Investment (ROI).

Thirdly, there is peer-to-peer lending, which essentially allows you to get a loan from multiple individuals but requires paying it back with an interest rate. The better your credit score the less the interest rate will be. This method is a good way to generate the capital you need not only for the present product/project but for continued and subsequent company growth.

It can be a real struggle finding the right crowdfunding site that best suits your project, as Bone and Baeck (2017) explain: “There are currently 65 active UK-based crowdfunding platforms”, all of which have a mix of different features. Some popular crowdfunding sites include CrowdCube, Indiegogo, Kickstarter, Seedrs and Patreon. They each offer different attractions, but the one that I will focus on is Kickstarter, about which Somerville (2019) says “Kickstarter launched in 2009 with the aim to find a new way to fund and follow creativity”. Kickstarter’s mission is basically to help bring creative projects to life, and as a design student this has a considerable appeal for products and ideas I have for the future.

Not only is it necessary to decide what crowdfunding site to choose when looking to raise investment for your project, it is also important to understand that when using social media marketing you should not only focus on generating investment, but also on promoting what the brand means, potentially generating a loyal following. According to an infographic published by Ambassador, “71% of consumers are more likely to recommend a brand to others if they have a positive experience with it on social media” (Smith, 2017). This is precisely the reason why brands like Pizza Hut are active on their Twitter pages so that they can instantly help with the negative marketing on social media. They address the issues customers may be having with their product or service to boost customer retention and underpin brand loyalty. If a project has gone live on a crowdfunding site, it is not only necessary to continue the production process but also to keep track of customer input and questions as, ultimately, they are the ones backing the project and, without them, there would be no funding to continue with the idea.

It is often thought that crowdfunding is only used for start-ups, but in fact it can be used at any stage of a product’s life cycle. Monzo is a great example of a successful crowdfunding story in that they have continually used this method for their projects. On their second submission they succeeded in raising “a record breaking £2.5 million from more than 6,500 investors through its equity Crowdfunding campaign on Crowdcube” (Bone and Baeck, 2017), and that is after they raised their initial £1 million target in 2015. To improve on that, Monzo, who had clearly sparked up a following, returned to Crowdcube for a third time and “raised £20m in the largest-ever crowdfunding round for a fintech company” (Blomfield, 2018). This is a very strong example of the success of crowdfunding, and why it is popular and such a good fit with social media.

A good illustrative example of a creative crowdfunding project is the most-backed project in Kickstarter history – Exploding Kittens. This game is a strategic version of Russian Roulette mixed with entertaining illustrations of kittens, explosions, laser beams and sometimes goats. It was an instant hit with thousands of backers due to its retro style, but something that helped get the ball rolling was the fact that all three creators had a large following from their already established careers; especially “Matthew Inman who is the creative force behind The Oatmeal, a humor website that gets at least seven million unique visitors each month” (Okyle 2015). With the help of social media, word of mouth and the sheer brilliance of the game, Exploding Kittens topped the most backed list of Kickstarter projects with almost 220,000 people pledging and becoming the seventh most funded project at just under £8.8m. This all stemmed from a creative idea that was brought to the public eye on social media and Kickstarter.

Filippo Loreti is another good example of an idea that has been successfully embraced by the crowdfunding community; Fillippo Loreti’s work within social media played a huge role in securing many backers. The Jakutis brothers saw an opportunity to offer high-quality luxury watches without the traditional premium retail prices of watches which they state “can be anywhere between 10 and 40 times higher than its production cost” (Filippo Loreti, 2019). Their first project kicked off in 2015 and raised a total of €926,960. Bolstered by the success of their first project, they moved on to secure funding a second time, but this time their 2016 project “raised over $200,000 in the first 24 hours, securing €4,809,548, reportedly breaking the record for the world’s most-funded watch campaign” (Hobey, 2018); which is now the 22nd most funded project on Kickstarter.

Based on this, I decided to join the social media hype around Filippo Loreti on their third project, pledging €298 as an early bird, obtaining 2 luxury watches with a 55% discount on the future retail price as well as an additional gifted luxury collector’s box at a value of €200. I have always had a passion for high end fashion luxury watches and follow luxury watch companies on social media. As a result Filippo Loreti’s targeted ads for their Kickstarter projects found their way to me on both Facebook & Instagram. Clearly, I had been identified as a potential investor and because of that it helped me become a backer. I was initially drawn by the imagery in the advertisement, then the story behind the watches described on the Kickstarter page. Finally, I was convinced that the incentives and pricing were providing exceptional value for money, became hooked and pledged. Originally, I pledged at a lower level as I was unsure how much I wanted to commit to, but after becoming connected to the Filippo Loreti community and based on their comments, updates and Facebook page, I increased my backing. As a first hand customer, it proved to me how valuable and important social media was to the success of the campaign. Firstly, it was social media that directed me to the project; then the digital site appropriately showcased the idea, outlined how to get behind the project, and lead to access of an online social community, all of which made me increase my bid. It was Social Media that helped ensure my first bid and then encouraged my add-on bid. Should there be a fourth Kickstarter from Filippo Loreti, I am now fully connected on Facebook, Instagram, Kickstarter and so they are now most likely to gain my repeat custom, as well as from 16,077 backers that pledged in their latest €3,34,663 campaign.
Matas Jakutis, one of Filippo Loreti’s two founding brothers explained to Crowdfund Insider that “Our generation is interested in engaging with product development. Our modern perspective on what millennials actually want is a huge advantage for us over traditional luxury brands” (Erin, 2018). This is a very valid point because, as a backer, it provided a great way to become involved with the process and I ended up contributing to the design process and the look and feel of the end product. Consequently I developed a far greater attachment to the watch, gaining a much greater sense of it being bespoke and personalised. That extra ‘added value’ certainly enhanced my brand loyalty.

I contacted Irma Vaidotaite, Filippo Loreti’s Head of Operations, via LinkedIn and through email I managed to extract a few answers to key questions regarding crowdfunding and their experience, and it was interesting to hear that they chose to continue with crowdfunding because “Filippo Loreti gained a huge following from the site while also gaining the capital we needed to go ahead with our project” (Vaidotaite, 2019). Facebook and Instagram, which I mentioned earlier as having hooked me as a backer, now boast over 315k and 94k followers respectively. These platforms are now the driving force for the products they are selling – but projects need to use social media consistently before, during and after the crowdfunding project if they are to maximise the effectiveness of the media. If it stops when the project stops then they are not capitalising on social media’s full potential.

By far the biggest positive about social media is that it has instantaneous effect; sharing brand promotions and projects on social media provides brands with a cost-effective, simple way to share information about product releases, upcoming deals and specials. People tag others to get them to see a product or service that they either like and want to share or which they think their friends will like. This means that the general public instantly become brand advocates without them necessarily knowing. It generates an awareness for the project as it is shared amongst a network of liked minded people instantly. This is harder to achieve using traditional marketing methods, such as TV or print, and that is why it is so vital to the success of crowdfunding campaigns.
To consolidate my case, I have cited Rick Banks’ Clubbed: a visual history of UK club culture, as my final example of a successful classic, creative based project using crowdfunding. Banks could not understand why there was no modern book surrounding the UK’s club culture so, it being a passion of his, he wanted to get to work and produce the definitive book. In order to proceed, he looked to gain funding from Kickstarter, which turned out to be successful. After asking Banks a few of my own questions via email interviews, I realised that his choice to crowdfund was to minimise the risk of him producing the book and no one being interested. He used the growth in interest to gauge his print run.

As Banks explained to me, from his point of view, he was fortunate that Kickstarter put his project on their homepage which fortuitously gained him considerably greater traction. Furthermore, an additional advantage to using crowdfunding was that “Kickstarter’s back end was very sophisticated — it gives you analytics to show where all the visits came from. Facebook and Twitter were the biggest referrers. In terms of admin it was great too. It automatically generated spreadsheets with the ability to add notes to the specific customers” (Banks, 2019). I can see why this would be of use as should he wish to start another project and/or continue with a Clubbed Version Two, he would immediately know where to direct his social media attention to boost a maximum number of backers.

Following on from Banks’ point about Facebook and Twitter being Clubbed’s biggest referrers, it is interesting to read in Zimmerman and NG’s (2017) social media marketing book, ‘Twitter’s view point’:“People use Twitter to do the following: Build a community, find new customers, have a conversation, ask questions, and promote your content/brand visibility”. This is precisely the reason why this social site, along with others, is making the crowdfunding of a project that much easier, as it can all be easily directed to the end goal – the site and the idea you want people to back.

Although, previously, Rick Banks praised Kickstarter’s sophisticated back end and its analytics, quantifying the success of social media advertising still remains a struggle for many brands – for example measuring ROI cannot necessarily be tracked from things like influencer marketing on Instagram. Whilst social shares and impressions from online social media marketing can mean success and traction for the project, it is hard to tell how the impressions translate into backers and revenue, but the use of Google Analytics in Figure 3 (Kickstarter, 2015) in the Kickstarter creator dashboard is a good step forward to understanding the sites that produce most traction.

Another negative factor that Banks explained came to his attention after completing the first successful Clubbed project, was “trying to keep up ‘rewards’ that other publishers offered. One of the biggest errors I made was offering free shipping” (Banks, 2019). It is essential to know your costs and figures so that when you set a budget for the project you a) do not put too high a goal on it as it may not be reached, and b) not be under ambitious with the price you set as you have to factor in the cost to deliver the rewards. Free add-ons, such as Filippo Loreti’s luxury collector box, can create substantial additional weights in postage, and therefore would have made the company incur larger shipping costs, resulting in less profit. This suggests that being aware of total production and delivery costs, together with setting a realistic goal for the first project, is prudent and critical to achieving profitability. In future projects, higher goals can feasibly be projected once a following is established, as in the Monzo example showcased earlier.
It is wise to start with a low goal in some instances as not all crowdfunding sites allow you to obtain the funding unless it is 100% successful with its budgeted goal – Kickstarter is one of the crowdfunding sites that abide by the all-or-nothing regime. Because of this it is seen that Kickstarter have a low success rate of just over 33%. To date the Kickstarter (2019) website showcases that they have “successfully funded 156,578 projects out of 427,477”, but that still has a 3.63 billion dollar tag. Should a project fail, it could potentially give your business a negative reputation making it harder to promote the next set of new ideas. Prudence is thus vital before going live.

Social media can reach out to all types of people, and so showcasing a project that fully describes your idea can prove to be detrimental should you not copyright your work. Once you start promoting your idea on social media, people gain interest and want to pursue the idea themselves. Therefore, once you place your potentially successful idea onto a crowdfunding site it becomes susceptible to people producing ‘knock off’ copies and, because of this, ideas need to be patented and have a copyright. Just as you would not see people going on the popular television show Dragons Den, looking to gain capital from the ‘dragons’ and being shown in front of millions of viewers, without securing their idea, the same principle needs to be applied when going online with crowdfunding sites.

When communicating with Social Chain, a globally leading social media marketing agency I managed to gain answers to a few questions such as “How prominent is social media marketing in a brands advertising remit?” Peter Dalay’s response was “The industry is extremely competitive, and social media has always been on the rise. If a brand decides not to use it then they are almost shooting themselves in the foot” (Chapman, 2018). This highlights the need to be active on social media. However, the positivity of instantaneous effect when using social media (as referred to on page 7), also has a negative counter; resources and time need to be available to actively drive projects out to larger communities and, if you are unable to apply these, it may be difficult to create the large following needed to successfully gain backers on Kickstarter.

In conclusion, I think that social media is a vital form of advertising for any project looking to target their audiences, especially if their audience is very niche. Social media advertising has the scope to pin point a specific audience and therefore get the traction desired from the right people, as exampled by Filippo Loreti who succeeded in reaching a loyal investor like me. Although this can be done using other traditional forms of advertisement by researching who watches certain shows and placing advertisements within the breaks of the shows,

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