6 Ways to Use Crowdfunding for Product Development Instead of going through the tedious and costly traditional route of market research, more entrepreneurs are turning to crowdfunding for product-market fit.
Opinions expressed by Entrepreneur contributors are their own.
Numerous products are launched into the market every day. However, prior to launch, each product needs to pass the product-market fit and more companies are testing the water via crowdfunding, an online model of raising funds and financing from individuals. By going down this route, entrepreneurs are able to test quickly, more effectively and economically.
Here are six ways to use crowdfunding for product development.
1. Measure market readiness
Crowdfunding is an effective tool for measuring market demand. Startups, and even existing and established companies, have used this path to check the market's readiness for their ideas or to introduce their product prototype while raising funds. If your idea or product is getting the backers to let go of their hard-earned dollars with only some perks as an exchange, like a shirt or a plaque of appreciation, then this can indicate a readiness for your concept.
2. Involve others in the design and development process
Allowing customers to participate in the creative process is a powerful way of empowering them and also getting precious feedback on what the market really wants. Imagine having your potential customers help you solve your design challenges for the future packaging of your next generation intensive moisturizing facial cream, or tell you their preferences for the future flavor of your iced tea drink. Crowdfunding helps you attract people who are interested in the success of your product. Involving them in the design and development process will help enrich the product in a whole new way.
3. Capture customer response and feedback
Traditionally, a company conducts a product and market research to test acceptability of a new product before they launch it in the market and it is an expensive activity. This is done through surveys, food taste tests, blind testing and more. The collection, evaluation and analysis of this data sometimes require sophisticated logistics and funding.
With crowdfunding, most of the people who back your fundraising project are already your product's users or company's advocates. When they receive the prototype or first-bulk production of your product (as a token for supporting your online fundraising) you can expect to get some very essential feedback on what they really think about your product.
4. Use complaints to improve your product
Most products being launched are an improvement of their previous model. Crowdfunding is an effective way to gather reports of customer complaints and get them to provide you with appropriate solutions. When the concept of the improved product is launched via crowdfunding, invite your fans to help in the development process. Since they have invested their time and money on your project, they will give you solutions and advocate the product to the naysayers when the new model hits the market. This is a win-win solution as you turn fans into investors and non-fans into delighted customers once again.
5. Promote and benchmark your final product
You can also use crowdfunding as a research tool to benchmark and promote your final product. Since the concept of achieving product-market fit is an abstract idea, you never really know when you have achieved it for sure. The long process of market testing and research can be short circuited by launching your final product via crowdfunding
You gain free marketing as the crowdfunding platform promotes your project and increases visibility of your product. If your crowdfunding is for 45 days, then you have at least 45 days of free advertising. How much would it cost you to advertise your product on television, print media or even in radio? Consider this as your cost savings.
This activity will also give you data on how many people backed your project, new fans you acquired in social media, new visitors to your website, among other metrics. These will help in benchmarking your product against similar products in the market, which can shed light on the viability and sustainability of your product. If it is not yet enough for the consumers to patronize, then you can always go back to the drawing board. It saves time and resources.
6. Engage your market and audience
After the crowdfunding campaign, the platform extends your thanks to the crowd free of charge. Further engage your crowd by communicating with them even after the campaign has ended. Send them updates on your product, and share your setbacks, challenges and successes. There may not be good product-market fit initially but this continuous communication loop will be appreciated by customers and fans making your product and company memorable and will spur greater product-market fit for your future products.