Securities Trading of Concepts (STOC)

Abstract

Identifying winning new product concepts can be a challenging process that requires insight into private consumer preferences. In order to measure consumer preferences for new product concepts, we apply a securities-trading approach where new product concepts are traded as financial securities: Securities Trading of Concepts (STOC). We apply this method because market prices are well known to efficiently collect and aggregate private information regarding the economic value of goods, services, and firms, particularly when trading financial securities. Our research includes the first application of securities markets to test potential new product concepts, and is the first to compare such an approach against stated-choice, conjoint, constantsum and longitudinal revealed preference data. In our research, we place STOC in the context of existing methodologies, as well as prior research on prediction markets and experimental economics. In the process, we put forth four hypotheses to test empirically through a series of experiments in multiple product categories, that STOC: 1) is more cost-efficient than other methods; 2) passes validity tests; 3) measures expectations of others; and 4) reveals individual preferences, not just those of the crowd. All hypotheses are confirmed, with the notable exception that STOC does not accurately predict actual product market shares and price sensitivity. Our results also show that traders exhibit bias based on self-preferences when trading. Ultimately, STOC offers two key advantages to traditional market research methodscost efficiency and scalability. For new product development (NPD) teams deciding where to invest product-development resources, this scalability may be especially important in the Web 2.0 world where customers are constantly interacting with firms and with each other in suggesting numerous product design possibilities that need to be screened.3

Sourcing, Filtering, and Evaluating New Product Ideas: An Empirical Exploration of the Performance of Idea Markets

“…For example, Dahan et al. () recommend using final stock prices to cash out the stocks, although doing so might incur some herding behavior. In addition, participation was limited to the employees of the company; further research should explore the advantages and disadvantages of including suppliers, consultants, or customers as well.…”

“…Thus, the major difference between idea markets and preference markets (Dahan, Soukhoroukova, and Spann, ) or concept markets (i.e., securities trading of concepts; Dahan, Kim, Lo, Poggio, and Chan, ) is that the number of available stocks is governed by the initiator of the concept or preference market, whereas the participants in idea markets propose and filter the new product ideas, which are then traded. Idea markets are distinctive because they deal with an unknown number of different stocks.…”

“…Dahan et al. () use the last traded price when a market closes at a random point in time, and LaComb et al. () employ the volume‐weighted average trading prices to determine the cash dividend of the stock.…”

Drivers and Consequences of Narrative Transportation: Understanding the Role of Stories and Domain‐Specific Skills in Improving Radically New Products

“…In product concept tests, participants usually receive a description of a concept that explains the technical characteristics of a potential new product (Dahan, Kim, Lo, Poggio, and Chan, ; Dahan and Srinivasan, ; Page and Rosenbaum, ). While such concept descriptions work well for INPs, they do not convey information about the product in a way that allows concept test participants to envisage RNPs well (Van den Hende and Schoormans, ).…”

Online Forum Discussion-Based Forecasting of New Product Market Performance

“…As research has shown the amount of stock bought is not always an unbiased indicator for the availability of accurate information. Dahan et al (2011) found that traders tend to exhibit a self-preference bias when trading. Where the performance of traders cannot be measured based on actual observable results, some people tend to gamble hoping to make excessive returns.…”