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When UC Berkeley decided to offer its executive education course on corporate crowdfunding, some faculty members wondered what relevance crowdfunding had to major brands. Especially because the original intent of crowdfunding was to help struggling small businesses—not billion-dollar brands.

However, many companies are starting to realize that crowdfunding represents a unique marketing opportunity for forwarding-thinking companies to dramatically strengthen consumer ties with their brand. Crowdfunding can also be used to drive innovation, and it is the newest (and probably most effective) form of crowdsourced product innovation.

Crowdfunding is the collection of finance from backers (the "crowd") to fund an initiative, and it usually occurs on Internet platforms.

Since emerging in 2008, crowdfunding has become a multibillion-dollar global industry with thousands of platforms offering funding opportunities to entrepreneurs, community organizations, and lately major corporations, such as Dodge, Honda, Coca-Cola, American Express, and DC Comics.

Corporations with access to debt and securities markets don't need to use crowdfunding to finance operations for growth capital. However, what smart CMOs and CEOs have realized is that crowdfunding does a remarkably effective job in helping to drive marketing initiatives to existing customers and acquiring new customers.

Forget the hypothetical value of a social media mention, such as a Facebook like. When you can get a customer or social follower to contribute cash to a corporate-sponsored campaign, you have the deepest form of social media engagement possible.

What Strategic Corporate Crowdfunding Looks Like

The first model of strategic corporate crowdfunding is not to create an opportunity for customers to finance the purchase of your product for themselves but usually for a social cause or community organization.

Dodge did a fantastic job with its campaign.

The registry allowed customers to have backers fund parts of the car. For example, a customer's aunt could buy the steering wheel.

The magic of this model was revealed when community organizations started trying to fund the purchase of Dodge Darts to deliver food to the homeless and to provide access to transportation in women's shelters. The campaign then went viral with more than 1,000,000 social media impressions.

Though fewer than 40 cars were purchased directly, the company engaged and mined data from tens of thousands of potential new customers and saw sales more than double the following quarter.

Dell used a similar logic by having customers fund the purchase of a laptop for first-generation, low-income college students.

The second model of strategic corporate crowdfunding is to use crowdfunding campaigns for community projects for entrepreneurs whose missions align with the company.

Honda used a campaign on to raise funds to save the American drive-in theater. This marketing strategy is about social engagement and brand positioning.

Kimberly-Clark uses a hybrid model with its Huggies MomInspired campaign. The company provided grants to moms to develop innovative products for children. What Kimberly-Clark created is an external R&D laboratory, which led to significant opportunities for revenue increase. Huggies now learns from its customers—without focus groups or formal market research. Its cost per social impression is 40% lower than other forms of marketing, and the company has not had a single negative social comment.

Understanding Consumers

Many companies now use crowdfunding for market intelligence, especially since the funding of innovation in America has changed.

The first option for most entrepreneurs with a product idea is to use crowdfunding to fund its development. Crowdfunding receives $60,000 an hour in donations or in pre-sale of products each hour.

Corporations and venture funds alike are monitoring activity on leading crowdfunding platforms and trying to understand how consumers are interacting with product ideas on these platforms. That can be as simple as tracking the trending campaigns, seeing what type of product innovations are receiving funding, and who is participating in the funding campaigns (i.e., joining the community of people backing a particular idea).

Smart brands have realized that thousands of focus groups are occurring in real time on these platforms.

The most famous crowdfunded product, the Pebble Watch, is a great study. Within two weeks of launching the product, the community started pushing hard on the founders to make the watch waterproof. The company added this feature before it closed the campaign.

There are dozens of examples where domain experts, product designers, and marketing professionals have provided rich and detailed feedback to firms trying crowdfunding. This remarkable product feedback is given freely and openly, and it can be used by smart firms.

* * *

For firms that want to be at the forefront of digital strategies, crowdfunding represents a cutting-edge integrated marketing tool. It can strengthen customer affinity to brands through campaigns that tie to social causes or products. Firms can combine in-store and online experiences to create custom rewards and also deplete inventory.

Crowdfunding also deeply resonates with Millennials and early technology adopters. Nothing else allows firms to connect to target customers at such a low cost and to learn to innovate product lines so quickly. That's why more CMOs are starting to realize that crowdfunding is the new must-have marketing tool.

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Why Crowdfunding Is a Must-Have Marketing Tool for Brands

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image of Richard Swart

Richard Swart, PhD is a leading authority in crowdfunding and runs the crowdfunding research group at UC Berkeley.

LinkedIn: Richard Swart

Twitter: @richardswart