CHAPTER 18 CHAPTER 18 MARKET TESTING MARKET TESTING McGraw-Hill/Irwin Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved. What Is Market Testing? 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 Where We Are Today in Market Testing 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 Decision Matrix on When to Market Test Test Cost and Time Savings High Low Stages of the product development cycle High Low S c o p e o f L e a r n i n g a n d A c c u r a c y Figure 18.1 How Market Testing Relates to the How Market Testing Relates to the Other Testing Steps Other Testing Steps Figure 18.2 Two Key Values Obtained from Market Two Key Values Obtained from Market Testing 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 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 Types of Information That May Be Lacking 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 Methods of Market Testing, and Where Used Where Used Figure 18.3 Speculative Sale 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. [...]... 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 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... Improvement   marketing mix production facilities Disadvantages:  Cost ($1 mill+)  Time ( 9-1 2 months+)     hurt competitive advantage competitor may monitor test market competitor may go national Competitor can disrupt test market A Risk of Test Marketing: “Showing Your Hand”      Figure 18. 5 Kellogg tracked the sale of General Foods' Toast-Ems while they were in test market Noting they... 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... 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... 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... 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... During Rollout Figure 18. 7 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 Probable Future for Market Testing Methods  Test marketing  Pseudo sale  Minimarket  Rollout (“dinosaur”)... 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        Mall intercept Self-administered questionnaire Advertising stimuli Mini-store shopping experience Post-exposure questionnaire Receive trial... 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... 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     . CHAPTER 18 CHAPTER 18 MARKET TESTING MARKET TESTING McGraw-Hill/Irwin Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved. What Is Market Testing? What Is Market Testing?  Market. A c c u r a c y Figure 18. 1 How Market Testing Relates to the How Market Testing Relates to the Other Testing Steps Other Testing Steps Figure 18. 2 Two Key Values Obtained from Market Two Key Values. 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