Predicting Customer Need, Trends, Challenges Via Prediction Markets

28 09 2007

Would you bet your paycheck on the popularity of your latest new product or service?

Maybe if you knew the odds would be in your favor. How would you do it?

One way might be through crowdfunding – where you let your customers participate in choosing not just the idea or the initial design for a product or service but also help fund its start up. You can read earlier posts here on crowdfunding. You might also enjoy this old post on using customer-driven product design using “idea war” competitions like this one from Cambrian House.

Another way to predict product or service success is through the creation of a “prediction market” which has been taking many companies by storm in recent times. One amazing example is the Hollywood Stock Exchange, a virtual market game in which players buy and sell “pretend shares” in movies, actors, directors, etc. The market correctly predicted 32 of 2006’s 39 big-category Oscar nominees and 7 out of 8 top category winners.

How Prediction Markets Work

Prediction markets let stakeholders buy “imaginary stocks” in particular “events” that pay out a fixed price if the event transpires before a certain date, or nothing at all if it does not. Essentially, you are betting that an event will or will not occur. The price of an “event’s stock” represents the odds that the event will occur at a given moment in time.

Here is a scary one…. For example, you could ask your members:

“Will you achieve enough personal value from your membership to renew your membership by December 31, 2007?”

Presently there are online prediction markets for all sorts of things from politics to the weather. Google uses a prediction market internally to predict launch dates and other strategic events.

The theory holds that large groups of individuals are better able to make more accurate predictions and another example of crowdsourcing or peer production.

PPX is a market for science and technology events for Popular Science magazine. Below shows how readers are betting over time on the popularity of the iPhone as a predictor of Apple personal computer market share.

Applications for Associations

Prediction markets can offer:

  • A great way to stay engaged with your members and customers in “real time”
  • Create an ongoing collection of useful data to better inform product or service development
  • Separate volunteer “pet projects” from rank and file “needs”
  • Frame critical questions regarding emerging trends, market opportunities, product or service design issues, etc.

For more information of prediction markets click here.

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