Lego, Coke and other big brands are turning to crowdfunding for R&D
Executives at Lego had an idea for a product, but they weren't sure it would resonate with customers. They were leery of spending a lot of money on the idea—toys aimed at adults—without testing it first in the market.
Enter Indiegogo, a crowdfunding service that is luring more business from large corporations, which are using the platform to test ideas. New interest from the likes of Coca-Cola and Tyson provides a potentially lucrative business model for Indiegogo and other crowdsourcing services, whose appeal has traditionally been limited to small start-ups and entrepreneurs.
In late September, Lego used Indiegogo to find out if consumers would buy its newly conceived Lego Forma product, which are mechanical models of animals that are assembled from various parts. The models, which include replicas of fish, are aimed at encouraging adults to explore their creative sides. Normally, Lego would use a traditional research and development process and then do a global launch, says Kari Vinther Nielsen, senior marketing manager and head of creative play lab pilots at the Denmark-based toy maker. "But before even doing a global launch, we wanted to pilot it to see if there was an appetite."
Marketers are living in a world where "if you build it, they will come" doesn't always work. Indeed, consumers are more fickle than ever, as they face a plethora of options in both product and delivery method.
Crowdfunding platforms have traditionally been used by entrepreneurs and creatives eager to get financial backing for a new idea. But now some corporations are getting in on the fundraising as well. In addition to Lego, 10-year-old Indiegogo has worked with roughly 50 Fortune 500 companies, including Tyson Foods and Coca Cola, which market their innovations alongside the wares of the 6,000 startups that are live on the platform any given day. The Enterprise Program, which targets larger companies, started as a niche offering catering to corporate giants two years ago, following a successful campaign with General Electric a few years earlier.
Big companies "just started putting products that they had in their pipeline on Indiegogo so they could gauge the product fit early on in the life cycle," says David Mandelbrot, chief executive of Indiegogo. He notes that traditionally, brands used to do focus groups and surveys for new products, but such tests never yielded real results. "There's a country mile between somebody saying they will buy it, and actually pulling out their wallet and making a purchase," Mandelbrot says.
With crowdfunding, consumers pay to get early access to products. They also get bragging rights for being involved the development early on. For brands, the benefits are even greater: They get a dedicated and invested consumer willing to provide feedback and research testing for very little cost. Lego is selling its Forma products for $85, which it says is a 22 percent discount.
Companies gain insight on the viability of taking products to the mass market. Idiegogo takes a cut of the price. Fees for the enterprise division mirrors its small entrepreneur model—5 percent of the total funds raised, plus an additional fee for credit card processing of all contributors. Many corporations also choose to pay a service fee to Indiegogo to help manage the crowdfunding campaign, Mandelbrot says, noting that the dollars usually come from a brand's marketing or research and development budget.
"These departments—R&D and marketing—are usually cost centers within those enterprises, so they are actually generating revenue through projects on Indiegogo in addition to getting the insights," Mandelbrot adds. Mandelbrot says Indiegogo is launching around three to five new corporate campaigns every quarter.
Of course, Indiegogo is not the only crowdfunding site that marketers can use to pioneer new wares. However, it's one of the few catering to the corporations. GoFundMe tends to focus on more personal and charity campaigns, a spokeswoman says, noting that the company's corporate campaigns are for charity events rather than new products. A Kickstarter spokesman simply states, "Large corporate brands have not been a focus for us." Conversely, the company, which was reincorporated three years ago as a public benefit corporation, concentrates on independent creators—which are supported by the majority of consumer backers on the platform. And some of those creators, like Leaf Razor, which used Kickstarter for a battery powered heated razor two years ago, are challenging major marketers with new competition. Last month, Gillette's labs unit began an Indiegogo campaign for its new heated razor system, which carried a discounted price.
Testing for traction
For Lego, the new crowdfunding campaign is a cheap testing method at a time when the toymaker needs it most. The 86-year-old brand has struggled to boost sales in a digital age when kids prefer coding online to building on the floor. It posted its first sales decline in more than a decade earlier this year and has had layoffs. In September, the brand reported a 5 percent decline in sales to 14.3 billion DKK, the equivalent of $2.2 billion, for the first half of 2018 compared with the year-earlier period.
One week into the Indiegogo campaign, Lego exceeded its fundraising goal of 500 donors. And within two weeks, the company had nearly 5,000 donors, about ten times its goal.
"We're getting a lot of feedback, which is what we wanted to do," says Vinther Nielsen, noting that any demands for updates or changes are being noted for the creation process. "We reached our funding goal, which is a nice number. But what's important to us is having this open dialog with the community."
Other brands have also seen success at engaging customers. Last spring, the innovation unit at Chicago-based Tyson Foods used Indiegogo to launch Yappah, a brand of protein crisps made from "upcycled" leftover vegetables and grains. After debuting on Indiegogo, the snacks sold at a Chicago supermarket for a 90-day pilot. The pilot was part of the Tyson Innovation Lab, which was founded last year.
Like Lego, Coca Cola also exceeded its early goal for a product it ran on Indiegogo to sell its Valser Natural Mineral Water. While the mineral water was popular in Europe, executives weren't sure it would be a fit for U.S. consumers. In December, Coca Cola ran a one-month campaign.
"Typically as we think about taking solutions and testing them in the U.S., it can take a lot of time: Our traditional ways of doing market research involve focus groups and testing," says George Parker, director of innovation for Coca Cola USA. Valser generated $700 more than its $10,000 fundraising goal through nearly 200 backers. The product is now offered as a larger test in 10 Atlanta restaurants.
"The beauty of crowdfunding is that when you start to drive momentum, the internal Indiegogo community starts to accelerate it," says Parker, noting that Indiegogo automatically highlights well-performing campaigns so brands don't have to do much to promote them. "It organically starts to take off."