Goethe-University, Frankfurt am Main (Germany) WHU-Otto Beisheim GSM, Vallendar (Germany) Expert Identification via Virtual Stock Markets: Finding Lead Users in Consumer Product Markets DIMACS Workshop on Markets as Predictive Devices Rutgers University, February 3 rd 2005 Martin Spann, Holger Ernst, Bernd Skiera, Jan Henrik Soll

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Objective of the Presentation  Application of virtual stock markets to marketing research  Outline the rationale for virtual stock markets as an efficient tool for expert identification  Present results of an empirical study

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Marketing Research Applications  Business Forecasting Company revenues and product sales Market shares Return of strategic investments (e.g. technology)  New Product Development Evaluation of Product Concepts Identification of lead users

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Marketing Research via VSM Information Source VSM Traders' individual portfolios Stock Prices Expert Identification This study Chen/Plott (2002) Forsythe et al. (1992) Forsythe/Rietz/Ross (1999) Pennock et al. (2000) Spann/Skiera (2003) Wolfers/Zitzewitz (2004) Forecasting Events in near Future Forecasting Alternatives Chan et al. (2002) Hanson (1992)

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Lead User Concept  von Hippel (1986): Lead Users face future product needs months or even years earlier than normal customers often try to find solutions to these needs by themselves  Analysis of lead users can detect these future needs and obtain new product ideas to satisfy these needs

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Rationale for Virtual Stock Markets as a Tool for Lead User Identification  Idea: Participant's performance at a virtual stock market is an indicator of knowledge about event to be predicted Two effects permit identification:  Self-selection effect Attraction of participants who display higher involvement with the product  Performance effect Successful participants are more knowledgeable, because they detect and exploit inefficient prices Inefficient prices = incorrect predictions

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Empirical Study  Goal: Analyze feasibility of VSMs for lead user identification  Methodology: Analyze participants at an VSM according to performance and lead user characteristics  Application to success forecasting of movies: Relevant for producers and exhibitors Each movie is a new product with high failure rates Movies increasingly rely on branding (e.g. sequels) Value chain: theaters, rental, sale and merchandize

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Design of Empirical Study: Two Phases 1.Setup of VSM for the prediction of the box-office success of movies in Germany Forecast of number of movie visitors 6 rounds with total number of 350 participants 70 movies (release between May and October 2001) Participant's performance: Mean Portfolio increase in active rounds 2.Online-survey for lead user characteristics (after end of VSM; lottery of gift vouchers as incentive): Opinion leadership Expertise Expected Benefit Survey response rate of 29.2% (n=102)

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Proportion of Lead Users among Traders  Identification of lead users by threshold levels (=sample mean) of each factor: opinion leadership, expertise and expected benefit  Result: 20.6% (=21) of respondents fulfill required level of the three lead user criteria

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Are Top Traders more likely to be Lead Users? (1/2)  Factor scores of top and bottom traders

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Are Top Traders more likely to be Lead Users? (2/2)  Significant relationship between performance and frequency of lead users

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © How differ successful and non successful Lead Users?  Factor scores of top and bottom performing lead users

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © How do Lead Users achieve higher Performance?  Hypothesis: Lead users exploit every perceived price inefficiency  conduct significantly more orders and trades than non lead users: No. of trades per active round: for lead users (20.90 for non lead users) No. of orders per active round: for lead users (19.35 for non lead users) Differences significant at 1% level (t-test for independent samples and ANOVA)

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Discussion and Limitations  Not all lead users perform well at VSM not all lead users can translate assessment of unmet needs into success forecast of product VSM selects those lead users with better market understanding  most desired ones to integrate into new product development process  Only one product category  Limited availability of benchmark studies (proportion of lead users in consumer markets)

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Managerial Implications  Results show feasibility of VSM for efficient lead user identification  Possible double benefit of VSM: forecasting and lead user identification  Identified lead users can be used for in-depth studies: Interviews Idea generation Concept testing

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Contact  Martin Spann School of Business and Economics Johann Wolfgang Goethe-University Frankfurt am Main (Germany) Phone: +49-(0) Fax: +49-(0)

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Items to Measure Lead User Characteristics

"Expert Identification via VSMs" Spann/Ernst/Skiera/Soll, Goethe-University, Frankfurt am Main & Vallendar, Germany © Dimensions of Lead User Characteristics  Exploratory FA  Satisfactory results of confirmatory FA: GFI =.88, CFI =.89, RMSEA =.13