the power of prediction markets in concept testing

Edison light bulbs hanging from ceiling

Everything is changing. Literally everything- and fast. New phones, apps, refrigerators, items you would never expect could innovate are doing so and it’s amazing to witness.

The same is true of market research. We got tired of concept tests that frequently did not discriminate- that is until we discovered prediction markets.

Research Strategy Group is the Canadian market leader in prediction markets and their application to market research. Prediction markets leverage the wisdom of crowds and are conceptually similar to a stock market. They may sound like a new thing for consumer research, but actually prediction markets have been around for quite some time now.

Here’s a brief history lesson, in 1602 the modern stock market begins, the Dutch East India Company bets on outcomes and predicts company value. Fast forward to 1992 when Dr. Robin Hanson created a prediction market algorithm that is still used today. Prediction markets are widely used in the Hollywood Stock Exchange, where traders predict box office hits and if movie sequels have legs. Another popular application is in politics and predicting the outcomes of events.

Okay, back to Market Research and concept testing. Here at Research Strategy Group, we have thoughtfully replaced the traditional concept test with prediction markets. And they’re getting a lot of traction. We work with a lot of forward thinking clients who have added this method to their decision-making toolkit. What makes their job easier? It’s the strong analysis they receive. Every question in a prediction market includes a probability of the event occurring, the strength of conviction and qualitative diagnostic feedback.

Here’s a breakdown of what that all means:

The probability score: The output of a prediction market is a probability score for each concept tested. The range of differentiation in the results a prediction market provides cannot be matched using any other screening tool.

The strength meter: When traders enter the market, they are given points to invest across the questions they answer. Their investment represents the ‘weight’ they put behind their prediction or the strength of their conviction. This is an added layer of discrimination between ideas.

The commentary: On every prediction made in the market, a customizable open ended question is included to understand ‘Why did you bet or trade that way?’ This field pulls in the qualitative diagnostics every concept or idea needs for further optimization.

Here are a few other facts about prediction markets.

  • speed – they can be completed in a couple of days
  • volume – you can test as many concepts as you want in a single market
  • value – they are highly cost effective
  • accurate and predictive
  • differentiating – no more concept scores that all seem the same

There you have it. Prediction markets explained. They are new to market research and different from everything else out there. We’ll admit it – change is scary. But you are not alone, there are others like you, pushing towards new levels of innovation and engagement in our industry.

“First may I state that although I had my initial concerns about utilizing this methodology of a broad based general population sample in quantitative research to determine an optimal package design and copy positioning, I feel that we did receive good solid insightful direction on which package and copy is likely to succeed.” – p12m prediction market user

Call or email Michelle at michellestephenson@rsginc.net (416-928-3570) and she will be happy to help you out.