Saturday, September 6, 2014

Hundred dollar test

Suppose you are making a new product and wondering what all features are important and what all are not so important. If you ask an end user, he will say he needs everything. He might give some idea of relative importance but it many times does not gives a clear picture of his inclinations. It usually turns out to be free flow of thought. And when you talk to more customers, the picture becomes murkier. Hundred dollar test helps in bringing sense to all the possible features that can go into product. However before hundred dollar test, you would want to screen the list and come up with a small set of features. For the initial screening, one can do market study or some sort of survey. For hundred dollar test to be effective, you might want to be ready with the list of possible features which you can give to your customers. Also customer sample is important as you might want to make a sample of the true representation of customer universe, otherwise the results may get skewed in some direction.

So how does hundred dollar test works. The idea is very simple. You have a list of features that you
want to put in the product, it could be a new product or it could be features on old product. You ask each participant from the sample that if they are given hundred dollars, than how much money they will spend on each feature. You can put some limit like not putting more than thirty dollar on a single feature and not to select more than certain number of features. 

The idea of putting a limit on the amount is that the participants does not gets carried away with his passion. Something like "Oh I will put hundred dollar of mine on top, if you can give feature 6." He might be representing a unique situation of himself but may not be valid across the customer spectrum. However if every participant is saying that, believe me you have hit the jackpot, pending executing.

The idea of restricting the number of features to be selected is to avoid long tails. Otherwise it's just become too fuzzy and also does not forces the participants to make a decision about their choices. 

The table to be presented to the participant is very simple

Amount I will spend out of $100
Feature A

Feature B

Feature C

Feature D

Feature E

Feature F

Feature G

Another variation could be to actually give the amount of money that you think will be the price of the product rounded to nearest zeroes. For example if you think that you might want to sell your new product in the range of $800 then give participants $1000 and see how they are willing to spend the money. If you are proposing to replace the current mechanism of working of end user with your product, than end users have a clear idea of how much they are spending right now and how much they are willing to pay for the new thing. It can help in price discovery also. 

The idea of using money in place of points is that people relate to money better. We will usually have a fair idea of how much we are willing to spend for something.

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