New Products Management - CHAPTER 18 MARKET TESTING pps

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, minimarke

CHAPTER 18

MARKET TESTING

McGraw-Hill/Irwin Copyright ©2006 The McGraw-Hill Companies, Inc All right reserved

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

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

How Market Testing Relates to the

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.

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

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

Where Used

Figure 18.3

Speculative Sale

consumer durables, similar to concept and

product use tests.

discuss pricing, and ask:

 “If we make this product available as I have

described it, would you buy it?”

on real target customers.

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)

 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

 Receive trial package.

 Phone followup and offer to buy more.

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

 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

method.

because more information can be sent and more variations can be tested easily.

technologies of credit card financing, telephone ordering, and database compilation.

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

 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:

IRI’s BehaviorScan and InfoScan

 Cable TV interrupt privileges

 Full record of what other media (such as magazines) go into each

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

 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.

test-marketing its own Maxim brand when Nestle bypassed

them with Taster's Choice, which went on to be the leading

brand.

chocolate chip cookies, both Nabisco and Keebler rolled out

similar cookies nationwide.

cleaner It was in test marketing for three years, during which time both Vanish and Ty-D-Bol became established in the

market

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

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.

Patterns of Information Gained

Risks of Rollout

facility early.

national while the rollout is still underway.

channel.

launch may generate.

Probable Future for Market Testing Methods

 Test marketing (“dinosaur”)

 Pseudo sale (incomplete)

 Minimarket (flexibility & variety)

 Rollout (small, fast, flexible)