Written by: Roxana Strohmenger, Forrester Research
As my colleagues in our team can attest, I get giddy when I talk about all the cool, emerging, and innovative methods that market research professionals can use ‘ whether it be how biometric techniques helped the Campbell Soup Company understand how consumers respond to marketing and advertising in order to redesign its soup-can logo, or when Nokia used mobile research methods as a way to understand what emotional constructs influence a consumer’s ‘love and admiration’ for a brand. All in all, it is great to see technology starting to make a significant impact on how we collect richer insights about consumers.
To help market research professionals understand what innovative research techniques are out there, I am launching a report series this year that will cover some of these innovative methods. To kick off the series, I have focused on prediction markets. Why? Because I see this extremely underutilized method as a valuable tool in the long, expensive, and arduous process of product and concept testing.
Companies are faced with the following daunting facts:
- - Over 25,000 new consumer products skus are introduced annually in North America with only half of these new product launches considered successful at launch.
- - For every seven product ideas that are created, typically only one succeeds in the market.
- - An estimated 46% of all resources allocated to product development and commercialization is spent on products that are cancelled or that fail to yield an adequate financial return.
Despite all the time and money spent discovering and flushing out new product ideas, there really is no way, using methods like monadic testing, to predict whether the product is going to succeed in the marketplace. But, what if there is a way to predict the future and determine which ideas or products will succeed or fail? I posit that using a prediction market methodology can accomplish this task.
A prediction market is a speculative market that harnesses the power of the ‘wisdom of the crowds’ for the purpose of making predictions. This concept was addressed in James Surowiecki’s 2004 book entitled The Wisdom of Crowds, where he presented numerous case examples of how a diverse group of independently thinking individuals is able to make decisions and predictions better than individuals in isolation or even than experts. The beauty of this method is that it is not relying on asking individuals to make predictions about what they will do in the future but rather what they think other people will do. Research has shown that we are unreliable witnesses to our own motivations. However, as social animals, we are actually very good at noticing what other people are doing, sensing why they might be doing it, and predicting what they will do. Therefore, a crowd can successfully predict the future and ‘ for a market research professional’s purposes ‘ can predict which products will do well and which will fail in the marketplace.
Prediction markets have typically been used during the discovery stage, when market researchers are ascertaining which ideas should continue on for extensive research and development. Rather than spending significant amounts of time and money on a target population using monadic testing for each idea put forward, researchers instead use prediction markets to quickly and inexpensively determine which idea is predicted to be the winning concept and then run that concept through the product development life cycle. When comparing against findings from monadic testing, companies that have used prediction markets have repeatedly found that the results are exactly the same in terms of what is deemed the winning concept. And instead of taking several weeks and paying significant amounts of money for these studies, they have reduced the research process down to several days and reduced their costs by the order of 50%. This is definitely a methodology that should become a staple of any market research professional’s tool kit.
Stay tuned for my report, which will focus on the appropriate time to use prediction markets, how to incorporate them into your traditional research mix, and which vendors can help. And, please drop me a line’ or in the comments, of course ‘ if you’d like to give me your take on using prediction markets or any other type of innovative research method.
Also, if you are like me and want to hear more about using innovative research methods, take a look at this conference: Technology Driven Market Research Event. The theme for the conference is ‘Capture insights in real time; Measure meaningful chatter; and Showcase breakthrough methodologies.’ As a guest blogger for this event, I look forward to hearing great case examples on exactly how companies have used these ground-breaking tools and technologies and, most importantly, how they have incorporated these new techniques with their traditional research methods. Be on the lookout on my blog and Twitter account where I will be providing a summary and my perspective on the key takeaways from some of the presentations.
This blog is co-posted with Forrester’s For Market Researcher Professionals Blog.