New Products Management - CHAPTER 18 MARKET TESTING pps

CHAPTER 18
CHAPTER 18
MARKET TESTING
MARKET TESTING
McGraw-Hill/Irwin
Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.
What Is Market Testing?
What Is Market Testing?

Market testing is not test marketing!

Test marketing is one of many forms of market
testing others include simulated test market,
informal sale, minimarket, rollout.

Test marketing is also a much less common
form now due to cost and time commitments
and other drawbacks.
Where We Are Today in Market
Where We Are Today in Market
Testing
Testing

Scanner systems allow for immediate collection of product sales data.

Mathematical sales forecasting models are readily available that can
run on a relatively limited amount of data.

We are “building quality in,” testing the marketing components of the
product at early stages (ads, selling visuals, service contracts,
package designs, etc.) rather than testing the whole product at the

end.

Increased competition puts greater pressure on managers to
accelerate product cycle time.

Market testing is a team issue, not solely in the province of the
market research department.
Decision Matrix on When to Market
Decision Matrix on When to Market
Test
Test
Cost and Time
Savings
High
Low
Stages of the product development cycle
High
Low
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Figure 18.1
How Market Testing Relates to the
How Market Testing Relates to the
Other Testing Steps
Other Testing Steps
Figure 18.2
Two Key Values Obtained from Market
Two Key Values Obtained from Market
Testing
Testing

Solid forecasts of dollar and unit sales
volume.


Diagnostic information to allow for revising
and refining any aspect of the launch.
Deciding Whether to Market Test
Deciding Whether to Market Test

Any special twists on the launch? (limited time or budget,
need to make high volume quickly)

What information is needed? (expected sales volumes,
unknowns in manufacturing process, etc.)

Costs (direct cost of test, cost of launch, lost revenue
that an immediate national launch would have brought)

Nature of marketplace (competitive retaliation, customer
demand)

Capability of testing methodologies (do they fit the
managerial situation at hand)
Types of Information That May Be
Types of Information That May Be
Lacking
Lacking

Manufacturing process: can we ramp-up from
pilot production to full scale easily?

Vendors and resellers: will they do as they have
promised in supporting the launch?


Servicing infrastructure: adequate?

Customers: will they buy and use the product as
expected?

Cannibalization: what will be the extent?
Methods of Market Testing, and
Methods of Market Testing, and
Where Used
Where Used
Figure 18.3
Speculative Sale
Speculative Sale

Often used in business-to-business and consumer
durables, similar to concept and product use tests.

Give full pitch on product, answer questions,
discuss pricing, and ask:

“If we make this product available as I have
described it, would you buy it?”

Often conducted by regular salespeople calling on
real target customers.
Conditions for Speculative Sale
Conditions for Speculative Sale

Where industrial firms have very close downstream relationships

with key buyers.

Where new product work is technical, entrenched within a firm's
expertise, and only little reaction is needed from the marketplace.

Where the adventure has very little risk, and thus a costlier
method is not defendable.

Where the item is new (say, a new material or a completely new
product type) and key diagnostics are needed. For example, what
set of alternatives does the potential buyer see, or what possible
applications come to mind first.
Simulated Test Market (STM)
Simulated Test Market (STM)

Create a false buying situation and observe
what the customer does.

Follow-up with customer later to assess likely
repeat sales.

Often used for consumer nondurables.
Simulated Test Market Procedure
Simulated Test Market Procedure

Mall intercept.

Self-administered questionnaire.

Advertising stimuli.


Mini-store shopping experience.

Post-exposure questionnaire.

Receive trial package.

Phone followup and offer to buy more.
Possible Drawbacks to STMs
Possible Drawbacks to STMs

Mathematical complexity

False conditions

Possibly faulty assumptions on data, such as
number of stores that will make the product
available

May not be applicable to totally new-to-the-
market products, since no prior data available.

Does not test channel member response to the
new product, only the final consumer
Controlled Sale by Informal Selling
Controlled Sale by Informal Selling

Used for business-to-business products, also
consumer products sold directly to end users.


Train salespeople, give them the product and
the selling materials, and have them make calls
(in the field, or at trade shows).

Real presentations, and real sales, take place.
Controlled Sale by Direct Marketing
Controlled Sale by Direct Marketing

More secrecy than by any other controlled sale
method.

The feedback is almost instant.

Positioning and image development are easier
because more information can be sent and more
variations can be tested easily.

It is cheaper than the other techniques.

The technique matches today's growing
technologies of credit card financing, telephone
ordering, and database compilation.
Controlled Sale by Minimarkets
Controlled Sale by Minimarkets

Select a limited number of outlets each store is
a minicity or “minimarket.”

Do not use regular local TV or newspaper
advertising, but chosen outlets can advertise it in

its own flyers.

Can do shelf displays, demonstrations.

Use rebate, mail-in premium, or some other
method to get names of purchasers for later
follow-up.
Controlled Sale by Scanner Market
Controlled Sale by Scanner Market
Testing
Testing

Audit sales from grocery stores with scanner
systems over a few markets or national system.

Sample uses:

Can use the data as a mini-market test.

Can compare cities where differing levels of
sales support are provided.

Can monitor a rollout from one region to the
next.
Minimarkets and Scanner Testing:
Minimarkets and Scanner Testing:
IRI’s BehaviorScan and InfoScan
IRI’s BehaviorScan and InfoScan

Cable TV interrupt privileges


Full record of what other media (such as magazines) go into each
household

Family-by-family purchasing

Full record of 95 percent of all store sales of tested items from the check-
out scanners

Immediate stocking/distribution in almost every store is assured by the
research firm.
Result: IRI knows almost every stimulus that hits each individual family,
and it knows almost every change that takes place in each family's
purchase habits.
The Test Market
The Test Market

Several test market cities are selected.

Product is sold into those cities in the regular
channels and advertised at representative levels
in local media.

Once used to support the decision
whether
to
launch a product, now more frequently used to
determine
how best
to do so.

Pros and Cons of Test Marketing
Pros and Cons of Test Marketing
Advantages:

Risk Reduction

monetary risk

channel relationships

sales force morale

Strategic
Improvement

marketing mix

production facilities
Disadvantages:

Cost ($1 mill+)

Time (9-12 months+)

hurt competitive advantage

competitor may monitor
test market

competitor may go national


Competitor can disrupt
test market

Kellogg tracked the sale of General Foods' Toast-Ems while
they were in test market. Noting they were becoming popular,
they went national quickly with Pop-Tarts before the General
Foods' test market was over.

After having invented freeze-dried coffee, General Foods was
test-marketing its own Maxim brand when Nestle bypassed
them with Taster's Choice, which went on to be the leading
brand.

While Procter & Gamble were busy test-marketing their soft
chocolate chip cookies, both Nabisco and Keebler rolled out
similar cookies nationwide.

The same thing happened with P&G’s Brigade toilet-bowl
cleaner. It was in test marketing for three years, during which
time both Vanish and Ty-D-Bol became established in the
market.

General Foods' test market results for a new frozen baby food
were very encouraging, until it was learned that most of the
purchases were being made by competitors Gerber, Libby, and
Heinz.
A Risk of Test Marketing: “Showing Your
A Risk of Test Marketing: “Showing Your
Hand”

Hand”
Figure 18.5
The Rollout
The Rollout

Select a limited area of the country (one or several cities
or states, 25% of the market, etc.) and monitor sales of
product there.

Starting areas are not necessarily representative

The company may be able to get the ball rolling more
easily there

The company may deliberately choose a hard area to
sell in, to learn the pitfalls and what really drives
success.

Decision point: when to switch to the full national launch.
Types of Rollout
Types of Rollout

By geography (including international)

By application

By influence

By trade channel
Patterns of Information Gained

Patterns of Information Gained
During Rollout
During Rollout
Figure 18.7