MARKET TESTING

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MARKET TESTING

• PSEUDO SALE METHODS

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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.

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Where We Are Today in Market 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.

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Decision Matrix on When to Market Test
High
Low
Scope of Learning and Accuracy
Cost and Time Savings
High
Low
Stages of the product development cycle
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How Market Testing Relates to the Other Testing
Steps
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Two Key Values Obtained from Market Testing

• Solid forecasts of dollar and unit sales volume.
• Diagnostic information to allow for revising and
  refining any aspect of the launch.

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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)

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Types of Information That May Be 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?

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Methods of Market Testing, and Where Used
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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.

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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.

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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.

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Simulated Test Market Procedure

• Mall intercept.
• Self-administered questionnaire (asks for
  attitude and practice in product category).
• Advertising stimuli.
• Mini-store shopping experience (with play or real
  money) trial test.
• Post-exposure questionnaire to 10 of
  participants (attitudes and purchase plans).
• Non-buyers receive trial package.
• Phone follow-up and offer to buy more repeat
  test.

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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

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MARKET TESTING

• CONTROLLED SALE
• AND FULL SALE

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A-T-A-R and the Market Testing Methods
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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.

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Controlled Sale by Direct Marketing
Advantages

• 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.

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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 (since not offered in all outlets),
  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.

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Minimarkets and Scanner Testing IRIs
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.

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Controlled Sale by Scanner Market 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.

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Full Sale MethodsThe 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.

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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

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A Risk of Test Marketing Showing Your Hand

• 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 PGs 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.

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Full Sale MethodsThe 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.

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Types of Rollout

• By geography (including international)
• By application (to avoid confusion in benefits
  offered)
• By influence (use friendly distributors first)
• By trade channel

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Patterns of Information Gained During Rollout
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Risks of Rollout

• May need to invest in full-scale production
  facility early (unlike other tests).
• Competitors may move fast enough to go national
  while the rollout is still underway (just as with
  test marketing).
• Problems getting into the distribution channel.
• Lacks free national publicity that a full-scale
  launch may generate.

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Probable Future for Market Testing Methods

• Test marketing (dinosaur)
• Pseudo sale (incomplete)
• Minimarket (flexibility variety)
• Rollout (small, fast, flexible)