CHAPTER NINETEEN Market Testing November 9, 2004.
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Transcript of CHAPTER NINETEEN Market Testing November 9, 2004.
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 the responsibility of the market research department.
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?
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
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
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 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
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 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: 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
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
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 Hand”
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
By geography (including international) By application By influence By trade channel
Risks of Rollout
May need to invest in full-scale production facility early.
Competitors may move fast enough to go national while the rollout is still underway.
Problems getting into the distribution channel.
Lacks national publicity that a full-scale launch may generate.