NEW PRODUCTS
MANAGEMENT
Merle Crawford
Anthony Di Benedetto
10th Edition
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 18
Market Testing
18-2
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.
18-3
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.
18-4
Market Tests Must Have Teeth
• Managers must be willing to take action based
on market test results.
• Negative market test results cannot be ignored
just because the team is reluctant to kill the
CEO’s pet project!
• Insights gained at this stage include:
– Solid sales forecasts with greater accuracy.
– Diagnostic information to revise or refine any
aspect of the launch.
• To gather this information and not use it is
asking for trouble!
18-5
High
Low
Cost and Time
Savings
Decision Matrix on When to Market
Test
Scope of Learning
and Accuracy
Low
High
Stages of the product development cycle
18-6
How Market Testing Relates to the
Other Testing Steps
18-7
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.
18-8
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)
18-9
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?
18-10
Methods of Market Testing, and
Where Used
18-11
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.
18-12
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.
18-13
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.
18-14
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.
18-15
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-themarket products, since no prior data available.
• Does not test channel member response to the
new product, only the final consumer
18-16
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.
18-17
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.
18-18
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.
18-19
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.
18-20
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.
18-21
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.
18-22
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
18-23
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 testmarketing 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 TyD-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.
18-24
The Current Role of Test Markets
• Despite the cost and time commitments, traditional test
markets still are used, especially if risks and
uncertainties are high.
• Starbucks did traditional test markets for Via instant
coffee, as the risks were judged to be high and a failure
could hurt overall Starbucks brand equity.
– Was Via perceived as high-quality and worthy of the Starbucks
brand?
– Were Starbucks taste features delivered by an instant?
– Were Starbucks customers skeptical of any instant?
– Did Starbucks customers like the individual packet format?
18-25
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.
18-26
Types of Rollout
•
•
•
•
By geography (including international)
By application
By influence
By trade channel
18-27
Patterns of Information Gained
During Rollout
18-28
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.
18-29
Probable Future for Market Testing
Methods
• Test marketing
• Pseudo sale
• Minimarket
• Rollout
(“dinosaur”)
(incomplete)
(flexibility & variety)
(small, fast, flexible)
18-30