Companies that sell physical products can find crowdfunding a powerful ally for launching a new product. Compared with companies that offer services, those that offer products often face high upfront costs and significant investment risks.

Crowdfunding is a powerful tool in this context because it makes it possible to raise the capital needed for product development while simultaneously doing a market test to validate the business idea, gather feedback on a prototype, build a customer base, cut the initial costs of e-commerce implementation, and advertise.

Among the different types of crowdfunding, reward crowdfunding is often the most effective choice for those who want to fund a new product without giving away company shares or incurring debt. With this model, in fact, supporters receive a reward in exchange for their support, but no financial remuneration is involved.

In this article, we discover all the crowdfunding resources for product companies and how to make the most of them for a successful launch and long-term benefits on business growth.

Which type of crowdfunding to choose?

Reward crowdfunding is the type of collection specifically designed for product companies, but there are other options as well:

Equity crowdfunding: the capital-raising model in which investors receive shares in the company in exchange for their contribution may be suitable for high-tech product startups with very high growth potential, backed by market data, in possession of a prototype of the object and eager to expand the company's membership to acquire investors within it who can bring in skills, knowledge and useful contacts in addition to capital. To make it easier to choose the right model, we have written an article comparing equity crowdfunding and reward crowdfunding.

Lending crowdfunding: the capital raising model in which investors provide a loan to the company and receive interest on the principal in return may be suitable for product companies that are more mature than a startup, capable of sustaining debt, and need liquidity for a specific purpose related to the making or marketing of a product. For example, purchasing a production machine, opening a new factory, or opening a retail shop.

In most other situations, reward crowdfunding is the first mode to consider. In this model, those who participate in the crowdfunding campaign make a contribution in return for which they receive a reward, a material or material+material reward related to the company's proposed product. Compared to the other two models, on average it results in a smaller amount of capital raised, but it offers many other advantages.

Why is Reward Crowdfunding the best choice for a product company?

Reward crowdfunding offers numerous benefits for startups and SMEs that produce or sell physical products:

• Raising economic resources to support the official development and marketing of the product, without incurring debt, without ceding shares in the company and decision-making power, and without having to offer guarantees.
• Market Validation: opportunity to test public interest before actual market launch, reducing entrepreneurial risk.
• Collection of feedback by supporters and those interested in the product, with the possibility of discovering and improving any weaknesses in the product before official marketing and discovering strengths to emphasize in public communication.
• Reduction of initial costs and risks related to producing and promoting something new, coming to market with a product that the public has already liked and at least partly financed.
• Cutting costs for the eventual opening of an e-commerce at a still uncertain stage of the business because economic transactions take place on the crowdfunding platform.
• Use of a marketing tool that is distinctive from competitors.

Reward crowdfunding makes it possible to pre-sell a product by avoiding the costs of implementing the digital infrastructure of an e-commerce and raising the capital needed to start actual production and cover operating expenses without having to invest from scratch in a production line and online sales platform. In addition, with a single operation and a single investment of resources, marketing activities to promote the product are carried out simultaneously.

All this with an online tool with much more streamlined regulation than equity and lending crowdfunding. It should be remembered primarily that reward crowdfunding involves the same taxation as traditional e-commerce and that the company makes a commitment to backers to deliver the rewards.

How to create an effective product crowdfunding campaign

A crowdfunding campaign for product companies must follow the general guidelines for successful crowdfunding and focus specifically on the development of the prototype and rewards for the participants in the collection.

The main secret to a successful crowdfunding campaign is proper preparation, planned in good time and without neglecting any details. Product companies that want to do crowdfunding must start from the premise that capital raising should be considered a business activity in its own right and not an experiment to be carried out by trial and error in the scraps of time. In fact, it is an activity that requires economic resources, a trained team, exclusively dedicated time, and has a significant impact on the future of the company. Positive or negative impact, depending on the commitment made.

The steps to follow to launch a reward crowdfunding campaign are as follows:

• Produce a business plan and roadmap for product launch.
• Define the target audience.
• Create a prototype to demonstrate the feasibility and functionality of the product.
• Devise attractive rewards for potential supporters, differentiating them by level of exclusivity and consistency.
• Build a crowdfunding communication plan through which to tell an engaging story to explain why the product is unique and why the crowdfunding opportunity is unmissable.
• Prepare quality visual materials and persuasive and informative textual content for social media, landing page and email marketing.
• Begin the search for support before the campaign launch by initiating marketing activities and making contact with stakeholders to ensure a secure base of participation on launch day.
• Continue with the marketing and sales strategy set before the launch throughout the campaign, providing constant updates and engaging interactions to the audience.

The ideal target audience for a product company.i

The ideal target audience for a product reward crowdfunding campaign primarily includes the company's current and potential customers. These people are in fact already interested or likely to be interested in the product offered and are therefore the most likely to financially support the campaign in exchange for early, convenient and exclusive access to the product.

Especially for certain types of products, such as tech or game products or those with a high rate of innovation, triggering a "fandom effect" around the object and the brand is the ideal goal to induce the desire to own the product as soon as possible and in its most exclusive version and to participate in its genesis, but also to stimulate word of mouth. To do this, it is necessary to have a thorough understanding of the needs the product is going to satisfy and the emotions it is capable of stimulating in customers, and to leverage the object's distinctive features in relation to these parameters.

In the case of B2B product enterprises, the reward crowdfunding campaign can also aim to finalize privileged supply agreements and partnerships.

The prototype for a crowdfunding campaign.

A crucial element in preparing a reward crowdfunding campaign is the presentation of an MVP (Minimum Viable Product). The MVP represents the simplest and most functional version of the product that allows you to attract customers and gather feedback from users with minimal effort and investment.

This approach also applies to equity crowdfunding campaigns. It allows testing of key business assumptions and improvements based on real market needs, reducing the risks and costs associated with early full product development.

Presenting an MVP during the campaign communicates that the project is already at an advanced stage, increasing credibility in the eyes of potential supporters and facilitating the demonstration of the value of the product and the raising of capital needed for full development.

Rewards for crowdfunding a product company

Creating effective and attractive rewards in reward crowdfunding is key to leading potential supporters to contribute to the project. Discounting can be part of the reward but cannot be the only element, because it is not a unique opportunity: discounts recur again and again in companies' proposals.

Here are some key characteristics that define effective rewards.

• Proposing exclusive and limited rewards: offer special product versions, limited or customized editions.

• Diversifying reward levels: structuring different contribution brackets with increasing benefits makes it possible to involve a wider range of supporters, adapting to different spending capacities, and to stimulate more generous participation. Diversification can also be related to the stage of participation in the campaign, so those who contribute earlier get larger rewards.

• Including unique experiences: offering opportunities such as behind-the-scenes tours of the production, meetings with the team or participation in exclusive events to strengthen the emotional connection with the project.

• Gathering ideas from the public: one way to actively engage users and create rewards that are sure to be appreciated is to take surveys and invite discussions to gather suggestions on possible rewards to offer.

By implementing these strategies, it is possible to create a reward system that not only attracts supporters, but actively involves them in the success of the project.

Marketing and Promotion Strategy

Marketing strategy is one of the essential elements of a successful crowdfunding campaign. Campaign promotion must be consistent with the company's usual marketing communications, but also stand out with distinctive elements to attract attention.

Key factors for building a good marketing strategy:

• Accurate target definition and segmentation by functional parameters
• Choice of channels
• Building an integrated communication network between various channels and methods of contacting users (social media, landing pages, newsletters, email marketing, SEO, paid advertising, account based marketing, etc.).
• Preparation of clear, consistent, and quality materials
• Use of CRM software
• Experimenting with different communication techniques and analyzing data to continuously improve and adapt the strategy.

For product companies with any type of crowdfunding it is important to convey the qualities of the product and rewards by creating effective high-quality visual materials and organizing offline events where possible to showcase the prototype and increase the confidence of potential backers, but also to gain media visibility.

In addition, referral and affiliate marketing can be exploited by leveraging other products offered by the company and word-of-mouth advertising from customers and testimonials selected from influencers or partners. This helps, in addition, to strengthen the company's customer base and network.

Finally, not to be forgotten is the principle of "onion-like" involvement, which involves starting with the contacts closest to the entrepreneur and the company, i.e., friends and family, and gradually expanding to the outer layers, using the supportive voice of early supporters to gain the attention of later ones.

The importance of customer relationship management

As part of an effective marketing and promotion strategy, the adoption of customer relationship management (CRM) software plays a key role. CRM is a technology that enables companies to centrally and automatically manage all interactions with acquired and potential customers across multiple channels, with the goal of improving relationships and fostering the use of data for business growth.

In the context of a crowdfunding campaign, in particular, CRM is an indispensable tool for lead management: it facilitates the operations of acquiring and organizing information and transforming leads into advocates through automated processes that are at the same time customized to the user's journey.

Even outside of the campaign, CRM software saves time, prevents lost leads, incentivizes repeat customer purchases, and maintains constant communication with database users.

The post Campaign: what happens next?

After the success of the campaign, it is important to properly manage the production and disbursement of rewards and products and maintain the relationship with supporters. This means:

• Meet reward disbursement deadlines and regularly update campaign supporters on the progress of the operation.
• Adhere to the product implementation road map and regularly update supporters on the progress of the project and the use of the capital raised.
• Stimulate word of mouth from supporters and involve them in the company's journey.
• Planning post-campaign sales and official market launch.

The biggest risk for startups and SMEs doing a reward crowdfunding campaign for products is to underestimate the costs and procedures of reward and product implementation and distribution, disappointing supporters' expectations and damaging their reputation.

So be careful to budget carefully and rely on safe and professional suppliers and distributors!

Reward crowdfunding platforms and examples of success

The most widely used platforms for reward crowdfunding are Kickstarter and Indiegogo, but in Italy Produzioni dal Basso also stands out. You can check out our article on reward crowdfunding platforms to learn more about how these portals work and discover the distinctive features of the most well-known ones.

For inspiration from those who have made it, however, you can read our article with examples of success in reward crowdfunding. Finally, don't forget that equity crowdfunding and lending crowdfunding can also be viable tools for product startups or SMEs and that the various types of crowdfunding can be integrated into a medium- to long-term capital raising strategy.