Crowdfunding Is the New Way To Test Market

 

GE Appliances is a sprawling company, with 16,000 employees and factories spread across six states. When it comes to developing niche products, though, it takes a page from garage tinkerers.

The Louisville, Ky., manufacturer uses crowdfunding, an online tool for raising money, to gauge consumer interest in potential products. If enough people are willing to pay ahead of time for something such as an indoor smoker or an induction cooktop, GE Appliances' FirstBuild unit will put it into production. If not, the concept dies.

Crowdfunding is usually associated with independent artists and startups. But GE Appliances, owned by China-based Haier Group, is among a number of big companies, including camera makers, toy producers and others, using the platforms. Though they usually charge close to full price for early access to a product, the companies' goal is more about gleaning insight into consumers' thinking, executives said.

"We are trying to get true consumer validation and basically avoid traditional market research," said GE Appliances Chief Executive Kevin Nolan. The company launched seven products via crowdfunding and killed an eighth, a cold-brew coffee machine, when it didn't meet its funding goal.

Crowdfunding took off in the 1990s as a way for filmmakers, bands and other artists to raise money needed to complete their projects. Donors acted as patrons, their contributions repaid with tickets, CDs or their names in the credits. Entrepreneurs picked up on the technique, offering customers discounted prices on a product if they paid in advance to fund its development and manufacture.

It yielded some notable hits: A company called Oculus, for example, raised $2.4 million on Kickstarter to make virtual-reality headsets. In 2014, two years after the campaign began, Facebook bought Oculus for $2 billion.

Large manufacturers took notice. Indiegogo, which started in 2008 to help small filmmakers get financing, has hosted campaigns for corporations like Whirlpool, Sony and Lenovo. The platform's chief executive, Becky Center, said big companies see crowdfunding as an alternative way to perform research.

"This is the new focus group," she said. "Instead of paying people to come, people are paying you, and they're kind of voting with their wallets."

Camera maker Canon used Indiegogo last year to introduce a product called the PowerShot Pick, which tracks faces and automatically shoots photos and video. The camera was available in Europe and Asia, but the company said it wanted to use crowdfunding to gauge its viability in the U.S.

Canon offered the cameras at a discount on Indiegogo and from those sales harvested 343 reviews, which it used to adjust its packaging design and marketing messages before distributing the product to retailers.

HasLab, part of the Hasbro toy company, makes limited-run action figures that can cost hundreds of dollars. While fans have backed most of its concepts, including a 27-inch-tall Transformer and Jabba the Hutt's sail barge, others have come up short.

A flaming muscle car driven by the Marvel character Ghost Rider needed 9,000 backers to go into production but got just over 5,000. A replica of a lightsaber seen in the Star Wars show "Obi-Wan Kenobi" got less than a third of the 5,000 backers it sought. Hasbro, which didn't produce either, said such rejection helps it recalibrate its offerings.

John Pyka, a Nashville, Tenn., toy collector who hosts a pop-culture podcast called "Back of the Cereal Box," is turned off by corporate crowdfunding, saying large companies such as Hasbro have no business engaging in a practice that should be reserved for small creators.

"They've already got money they can invest in marketing and advertising that campaign," he said. "They can suck the oxygen out of the room."

Hasbro said its participation in crowdfunding gives priority to fans and doesn't prevent others from conducting their own campaigns.

Ted Burdett, who has used Kickstarter to fund several projects for his small cookware company Fourneau, said crowdfunding is one of the few ways in which small businesses can attract attention.

"To have large companies that don't need it on the platform just doesn't feel right," said Burdett, who has taught students at the University of Illinois at Chicago about using crowdfunding in their own entrepreneurial pursuits.

Dan Quirk of Quirk's Media, which publishes a magazine and runs conferences on marketing research and insight, said traditional surveys and focus groups still hold many advantages. He said people who participate in crowdfunding are likely to be more affluent and tech savvy than the average consumer, so their enthusiasm might not reflect the larger market. Revealing a product before it is ready to be sold could allow competitors to rush a copycat to market, he said.

Nolan, of GE Appliances, said the public feedback crowdfunding can generate is crucial to the process. "I still think the little guy is going to out-innovate any big company any day of the week because most big companies won't do this," he said. "Most big companies want to keep things secret."

The first product GE Appliances crowdfunded has been its biggest hit. The Opal, which makes chewable ice nuggets, went into regular production following its 2016 debut and has sold hundreds of thousands of units. One of the company's newest projects is the Mella, a chamber the size of a large microwave oven that allows foodies to grow their own mushrooms.

Doug Millasich, a software developer who lives outside of Austin, joined the Mella crowdfunding effort, though he said the complexity and expense of operating the device convinced him to go back to getting his mushrooms at the farmers market. Millasich said he might support another crowdfunded product. "If somebody said to me, 'I'll sell you a jetpack for $300,' I might be inclined," he said." [1]

1. Business News: Crowdfunding Is the New Way To Test Market. Keilman, John. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 28 Aug 2023: B.3