In recent years, many studies have investigated the potential of demand response management (DRM) schemes to manage energy for residential buildings in a smart grid. However, most of the existing studies mainly focus on the theoretical design of DRM schemes and do not verify the proposed schemes through implementation. Smart grid research is highly interdisciplinary. As such, the establishment of testbeds to conduct DRM requires various skill sets that might not always be possible to arrange. However, the implementation of a DRM scheme is critical not only to verify the correctness of the design in a practical environment but also to address many important assumptions that are necessary for the actual deployment of the scheme. Thus, the theoretical aspect of DRM solutions should be discussed and verified in a practical environment to ensure that the scheme is suitable for deployment. In this paper, we propose a DRM scheme and construct a residential smart grid testbed to implement the proposed scheme. In the proposed DRM scheme, we suggest two different types of customer engagement plans, namely, green savvy plan and green aware plan, and design algorithms based on two user inconvenience indices to evaluate DRM for peak load reduction. The testbed verifies the effectiveness and efficiency of the proposed DRM scheme.