Test Marketing
Test marketing is a type of field experiment for testing new
products
or marketing-related elements of current products. The four types
of test markets are as follows:
 Traditional. Sales results are compared among multiple cities
for six to 12 months. Initial repeat purchase rates tend to be
overestimated because trial rates are higher than repeat
purchase rates and trial tends to dominate early purchases;
hence, the long timeframe.
 Simulated. In research facilities inside traditional malls, people
are asked to walk through a simulated store and purchase
products with money they have been given. Although it sounds
hokey, the results of simulated test markets are highly predictive
of ultimate market performance. Because only predictive
accuracy is critical, their artificiality is irrelevant.
 Controlled. Controlled test markets rely on universal product
codes, checkout scanning equipment (for recording shoppers’
purchases), computers (for processing massive amounts of
purchase data from many shoppers), and a marketing
information system (for converting those data into a format
managers can use for decision making).
 Virtual. Virtual test markets require consumers to log onto a
website and participate in a shopping simulation. Data
pertaining to product preference, store ambience, and browsing
time are captured, enabling retailers to develop more effective
strategies for their in-store and online operations.
Test markets are used to refine marketing strategies for new and
established brands and to decide about discontinuing a newly
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 Estimates of market shares and volumes. Test marketing
can produce accurate sales forecasts, as you can track
customer trial and repeat purchases.
 Estimates of cannibalization rate on existing product
line. Sales of a new model in a product line typically draw
sales from existing models. For example, Hewlett-Packard
and Brother shrink sales for their current printer models
when they introduce new printer models. Test market data
allow you to estimate the net effect of shifting sales on
overall profits for a product line.
 Competitor reactions. Competitors may notice your test
market efforts and adjust their immediate local strategies
accordingly. Thus, you can better anticipate their responses
to your new or improved product and plan accordingly.
Test markets only provide behavioral data; they can reveal an ad
campaign failed to stimulate sales, but not why the campaign
flopped. To ascertain how to fix a faulty ad campaign, it is
necessary
to ask people’s opinions of those ads. Hence, it is necessary to
supplement test market data with non-behavioral data.
Now, more detail about the four types of test markets.
Traditional Test Markets
Test markets offer the opportunity to estimate sales potential
under
realistic conditions. They also are useful for finding and correcting
product configuration, pricing, and promotional problems. For
example, a test market revealed that P&G had initially overpriced
Pampers; once P&G lowered the price per diaper, Pampers
became a successful brand.
Selecting Test Markets
Finding acceptable markets for testing products isn’t easy. The
many criteria for screening possible test markets include the
following:
 Sufficient population for reliable projections. Meeting this
criterion is especially important for products with lower sales
volume.
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 Representative demographically and in terms of product
consumption, behavior, media usage, and competition. A
market with vastly different competitors makes cross-market
comparison problematic.
 Test markets should be as similar as possible so differences
will be due to marketing differences rather than market
differences. However, if regional differences are important,
then the chosen test markets should reflect those
differences.
 Test markets should have little media spillover to or from
other markets. Otherwise, it is difficult to determine how
advertising messages and expenditures relate to sales.
 Available auditing and marketing research services; without
them, it will not be possible to collect needed measures like
purchase frequencies.
 Over-tested and idiosyncratic markets should be avoided.
The former should be avoided because once consumers
become wise to being tested, they respond differently
merely because they are frequently involved in testing.
Benefits and Limitations
Unlike other types of test markets, traditional test markets can
assess both consumers’ and distributors’ acceptance of the
product. However, such test markets suffer from four major
limitations.
 Cost versus information trade off. Test markets are not
cheap; they often cost millions of dollars once direct and
indirect costs (such as management time, diversion of
resources from current products, negative internal and
external impact of test failures) are included. When likely
costs exceed likely benefits, avoid test marketing.
 Speed of competitive response. Test markets take time
and can tip competitors about soon-to-be-released new or
updated products. Thus, they allow competitors additional
time to prepare a counterstrategy.
 Cost of producing the product. Limited production runs to
produce the small volume of product required for a test
market may be costly.
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 Damage to reputation. Test market failures can degrade a
company’s reputation. If P&G test markets a product and it
fails miserably, people who purchased it might generalize
negative attitudes to other P&G products.
Simulated Test Markets
In essence, a simulated test market is a research laboratory that
mimics a brick-and-mortar store. Typically, consumers with the
likely or known characteristics of test product buyers are recruited.
Participants, who must visit a test facility, are first exposed to media
messages—often one or more television commercials—for a test
product. Next, they enter a room that resembles a supermarket and
begin to shop. Days or weeks later—after they bought and had time
to use it—they are re-contacted and asked to evaluate the test
product and to predict their likelihood of future purchase.
Participants’ in-facility search behaviors, brand choices,
evaluations, and future purchase predictions are used to forecast
test product sales and develop effective marketing strategies.
Advantages
 Substantial time and cost savings. Such tests can be
conducted in a few months and are 1/10th or less the cost of
traditional test markets.
 Computer models used to forecast sales. Simulation
software allows alternative combinations of marketing
elements (for example, price and advertising) to be
evaluated simultaneously.
 Reasonably accurate. Typically, estimates of market share
and the like are +/-20% of eventual values.
 Avoids tipping competitors. Unlike traditional test
markets, which are visible to competitors, simulated test
markets can be conducted secretly (e.g., in behavioral labs).
Thus, they do not compromise the competitive advantage
associated with surprise launches of new or improved
products.
Limitations
 Highly artificial testing environment. Although intended
to mimic a real store, a simulated testing facility is a very
artificial shopping environment. As a result, searches and
choices in such facilities may not correspond to searches
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and choices in real stores.
 Hawthorne effect. Because consumers know they are
being monitored, they may act differently than in normal
shopping situations.
 Cannot anticipate distributor acceptance. A product
cannot appear on store shelves unless distributed by
wholesalers and carried by retailers. If either group believes
the product is a loser, then it will not appear in stores and
consumers’ likely response to it is irrelevant. In contrast,
distributor acceptance is evaluated easily in traditional test
markets.
 Cheaper, but still expensive. Although less costly than
traditional test markets, they still cost from $75,000 to
$150,000.
 Problematic cross-country comparisons. Because
consumers in different countries do not respond similarly to
simulated stores and are not equally accurate in predicting
their future purchases, cross-country comparisons may be
highly inaccurate.
Controlled Test Markets
Controlled test markets require two sets of participants in an
electronic panel system: small-city grocers and consumers.
 Smaller cities have fewer supermarkets, so it is possible to
convince all owners to participate. (In essence, what is
monitored is a mostly closed shopping system in which most
purchases are traceable.) The incentives to participate are
free scanning equipment and free inventory data.
 Consumers must be geographically isolated, so their
shopping occurs locally and they are not influenced by outof-market media. As incentives, they annually receive a
small token gift and an opportunity to win larger prizes
awarded by raffle.
Consumer panelists receive a bar-coded ID card that identifies
them. Scanning that card at checkout allows panelists to be linked
to all purchased items. Products are labeled with universal product
codes, which also are scanned at checkout. By recording panelists’
purchases during each supermarket visit, it is possible to track
household purchases over time.
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Controlled test markets permit testing of television and newspaper
ads.
 Television commercials. Smaller cities often are
dominated by a single cable operator. This operator must
cooperate as follows. The operator’s fiber optic network
must maintain a parallel channel for each commercial
channel it carries; that way, it is possible, using uniquely
addressable cable boxes (analogous to telephones), to
electronically switch between the main and parallel channel.
For example, suppose P&G purchased 30 seconds on a
commercial channel for a Crest toothpaste commercial.
Viewers selected by socio-demographics and/or previous
purchase behaviors can be switched to the parallel channel
to view an alternative Crest toothpaste test commercial. This
switching process is transparent to viewers.
 Newspaper ads. Smaller cities typically have one local
newspaper to which many households subscribe. As a
result, it is possible to target specific subscriber households
—again, chosen for socio-demographics and/or previous
purchase behaviors—to receive ads and tailored coupons in
the ad-customized newspaper they receive.
Advantages
 Complete store data. Personally recorded reports of
consumers’ purchases—even those created by handheld
scanners—only reveal what they bought; available
alternatives are not indicated. Knowing the available
alternatives, as well as what was chosen, is valuable.
Hence, relative to traditional diary panels, single-source
systems provide more comprehensive purchase data.
 Accurate tracking of coupon use. Coupon tracking data
could help companies optimize coupon denomination; every
unnecessary penny a company rebates to induce a sale is a
penny of foregone profitability.
 Can experiment with groups matched on historical
product usage. Companies can expose one group of
households known to purchase a certain type of product to
one ad, expose a different set of households also known to
purchase that product to a different ad, and then track the
purchases of each group.
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 Provide faster feedback than traditional test markets.
Collecting data in controlled test markets require weeks
rather than months. For new and expensive promotions, the
ability to make quick but minor tweaks is critical to boosting
their efficacy, so faster feedback is invaluable.
 More accurate than traditional store audits. Store audits
require many people with electronic scanning equipment to
check product quantities on shelves. Unfortunately,
products disappear from shelves for reasons other than a
purchase; for example, theft and spoilage. A store audit only
accounts for items moved off store shelves regardless of
reason. Because they only record purchases, controlled test
markets provide far more accurate sales information.
 More accurate than traditional purchase diaries. The
burden of maintaining a purchase diary often exceeds
panelists’ patience; hence, some purchases go unrecorded.
Also, some panelists will not admit to buying lesser
nutritious foods; for example, they may omit sugar-laden
purchases.
Limitations
 Limited to smaller markets. Bias is introduced to the
degree people who live in bigger cities differ systematically
from people who live in smaller cities.
 Limited to a few markets. Setting up controlled test
markets is an expensive proposition; thus, only a handful of
cities are monitored. With so few cities, it is difficult to
discern true geographical differences from specific-market
idiosyncrasies.
 Not all retailing outlets are represented. It is possible to
buy some grocery-type items—such as floor cleaners, light
bulbs, and pet food—at non-supermarket outlets. However,
controlled test markets do not include drug or mass
merchandise stores; hence, purchases at those outlets are
missed, which compromises sales data accuracy.
 Difficult to track low-volume products. Because
purchases are recorded in a small sample of smaller cities,
tracking low-purchase-incidence products (like pickled pig’s
feet) is problematic.
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 Tracks TV and newspaper usage rather than ad
exposure. It is impossible to know if anyone viewed the
commercial or if the television was operating in an empty
room. Similarly, it is impossible to know if anyone read the
newspaper ad or saw the coupon.
 Cannot track radio or magazine exposures. Although
such advertising can affect purchases, its influence is
unknown.
Virtual Test Markets
An alternative to traditional test markets, virtual test markets have
emerged as a viable way to monitor customer behavior. Web-based
software enables shoppers to enter virtual shopping worlds, where
they can browse a store, evaluate its ambience, participate in
product design, and make purchases.
Advantages
 Efficient store manipulation. Virtual environments can be
more readily manipulated than actual retail settings.
 Respondent participation. As technology is sexier than
pen-and-paper surveys or interviews, getting respondents to
participate in a virtual test market may prove easier than
getting them to complete a survey.
 Accurately predict customer behavior. A virtual
environment is meant to mirror a real shopping setting;
therefore, simulated shopping behavior may be a representative surrogate of actual shopping behavior. As a result,
forecasting precision may improve when running what-if
simulations.
 Cheaper than traditional test markets. Generating a
shopping simulation with a URL link for access is cheaper
than gathering test marketing data across several cities.
Limitations
 Virtual is not real. Although software attempts to mimic
stores and shoppers, a virtual shopping environment is not
real; therefore, how shoppers behave in the shopping
simulation may not reflect their actual shopping behavior.
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 Consumers more involved than normal. Because consumers
interact extensively in a simulation, their attentiveness is high.
This heightened level of involvement may not occur when
shopping. Thus, an effective marketing strategy in a simulated
shopping environment may not work
as well in the ‘real world’.
 Some influencing factors are missing. Although store
factors like smell and size influence shopping behaviors,
they cannot be incorporated into shopping simulations.
 Target market representativeness. As virtual test markets
are considered high tech, it is possible only a certain type of
shopper (those who are tech savvy) will participate in such
studies. Thus, data from other key demographics will not be
captured.
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