A market testing method based on crowd funding

Abstract

PurposeThis paper provides a tool for managers to overcome a common paradox in situations of innovation. The paradox occurs when the commercial viability of ideas for new products and services is unknown, making managers loath to invest scarce resources in developing them for fear that they will lose them if the idea is a non-starter. The result is that ideas sit on the shelf, idle and untested. This paper provides a low-cost, intuitive method for determining if a new idea has sufficient commercial potential to warrant investing in its development, thereby resolving the paradox.Design/methodology/approachThe method is based on six marketing mechanisms derived from crowd funding: choosing a target prospect and positioning, creating a prototype, setting a price based on value, locating prospects; getting an address, communicating with prospects; delivering an effective pitch, and measuring results through advance commitments. The method is illustrated using two entrepreneurial cases.FindingsManagers who use the method can validate ideas in the marketplace quickly and at low cost, obtaining the information they need to justify an investment in the research, planning and analysis required for commercialization.Originality/valueThe paper identifies a common but little discussed obstacle to innovation, the development paradox, and proposes a novel method of overcoming it. Market testing is not new, but most known methods do not solve the development paradox because they require a significant outlay of resources to undertake.