Using Prediction Markets for Concept Testing

Fortune telling with crystal ball © Nikki Zalewski - Fotolia.com

On September 18, the crew from BrainJuicer presented insights into shortening the process of creating and launching successful new products. In any given year, hundreds of thousands of new ideas are tested. Some win and make it to the show, but most never leave the minor leagues. Presenter Alex Batchelor started off with a reminder of the importance of recognition. Every day we encounter thousands of stimuli, yet only a fraction of them make it through our mental filters: we use heuristics (rules of thumb) to shorten the process needed to make a decision.

BrainJuicer uses a 3-factor model to explain the decision-making process:

  1. The environment is the first factor: the context in which we are making the decision.
  2. The second factor is the social; this relates to the use of copying other people’s actions and allowing others to influence our decision making.
  3. The third factor is our own personal state, including beliefs and feelings, when we are making a decision.

What are the implications for market research? Alex posits that we are self-deceit machines: we are worse at describing our own behaviors, but far better at observing and anticipating the behavior of others. The wisdom of crowds, as seen in examples such as the Iowa Election Market, shows a greater level of accuracy when people are asked not what they would do, but what they think others will or should do. Sir Francis Galton was the first to propose that the wisdom of crowds exceeds the best insight of the best expert.

Leveraging the election market concept, BrainJuicer asks respondents to run through an exercise asking them which ideas they would buy or sell shares in if they owned shares in all of the ideas presented. This creates two groups (the buys and the sells). From these two groups, respondents are then asked to indicate which idea they would sell all of their shares in and which one would they double their shares in.

BrainJuicer has tested their version of the predictive market with over 30,000 concepts and correlated them to sales and market share. The results of their research have shown a substantial correlation. International test data concludes that when presenting a concept there are four key areas to consider:

  1. Use fewer words in describing the concept – lengthier descriptions do not fare better.
  2. No need for the “insight” in the traditional model of opening; insight; benefits; reason to believe.
  3. Best to work with existing behaviors – it is possible to change behaviors with a new concept, but it is less likely to be successful.
  4. Make it simple by reducing complexity. This is critical, especially so if you are trying to change behaviors.

Another important point raised addresses the trend toward more visual imagery and less copy. This has become apparent in everything from print ads to the cover page of newspapers, which now prominently feature a visual image and significantly less copy.

BrainJuicer prediction markets

What are the key benefits of using a predictive market approach?

  • A higher level of accuracy
  • Greater discrimination between ideas
  • Ability to spot breakthrough ideas

In summary, in order to beat the overwhelming odds in the consumer market, you can leverage the wisdom of crowds using predictive markets to weed out those new product concepts with little appeal. You can also benefit from the idea of making it simpler through less copy, more visuals and a clear discussion on how the concept reduces complexity.

Greg Timpany directs the research efforts for Global Knowledge in Cary, North Carolina, and runs Anova Market Research. You can follow him on Twitter @DataDudeGreg.

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