Many Marketers Are Now Using New Simulated Marketing Technologies Such As Frito-lay S Online Virtual Convenience Store To Reduce The Cost Of

Discuss two additional product issues: socially responsible product decisions and international product and services marketing.

Author I New products are the Comment | lifeblood of a company. As old products mature and fade away, companies must develop new ones to take their place. For example, only seven years after it unveiled its first ¡Pod, half of Apple's revenues come from iPods and ¡Tunes.

New-product development

The development of original products, product improvements, product modifications, and new brands through the firm's own product-development efforts.

As the Apple story suggests, companies that excel at developing and managing new products reap big rewards. Every product seems to go through a life cycle—it is born, goes through several phases, and eventually dies as newer products come along that create greater value for customers. This product life cycle presents two major challenges: First, because all products eventually decline, a firm must be good at developing new products to replace aging ones (the challenge of new-product development). Second, the firm must be good at adapting its marketing strategies in the face of changing tastes, technologies, and competition as products pass through life-cycle stages (the challenge of product life-cycle strategies). We first look at the problem of finding and developing new products and then at the problem of managing them successfully over their life cycles.

New-Product Development Strategy

A firm can obtain new products in two ways. One is through acquisition—by buying a whole company, a patent, or a license to produce someone else's product. The other is through the firm's own new-product development efforts. By new products we mean original products, product improvements, product modifications, and new brands that the firm develops through its own research-and-development efforts. In this chapter, we concentrate on new-product development.

New products are important—to both customers and the marketers who serve them. For companies, new products are a key source of growth. For customers, they bring new solutions and variety to their lives. Yet innovation can be very expensive and very risky. New products face tough odds. According to one estimate, 90 percent of all new products fail. Each year, companies lose an estimated $20 billion to $30 billion on failed food products alone.2

Why do so many new products fail? There are several reasons. Although an idea may be good, the company may overestimate market size. The actual product may be poorly designed. Or it might be incorrectly positioned, launched at the wrong time, priced too high, or poorly advertised. A high-level executive might push a favorite idea despite poor marketing research findings. Sometimes the costs of product development are higher than expected, and sometimes competitors fight back harder than expected. However, the

Newproductworks

Ben-Ga,

Visiting the NewProductWorks is like finding yourself in some nightmare version of a supermarket. Each product failure represents squandered dollars and hopes.

A Strolling the aisles at NewProductWorks is like finding yourself in some nightmare version of a supermarket. Most of the over 110,000 products on display were abject failures. Behind each of them are squandered dollars and hopes and the classic question, "What were they thinking?" Some products failed because they simply failed to bring value to customers—for example, Look of Buttermilk Shampoo, Cucumber antiperspirant spray, or Premier smokeless cigarettes. Smokeless cigarettes? What were they thinking? Other companies failed because they attached trusted brand names to something totally out of character. Can you imagine swallowing Ben-Gay aspirin? Or how about Gerber Singles food for adults (perhaps the tasty pureed sweet-and-sour pork or chicken Madeira)? Other misbegotten attempts to stretch a good name include Cracker Jack cereal, Exxon fruit punch, Smucker's premium ketchup, Fruit of the Loom laundry detergent, and Harley-Davidson cake-decorating kits. Really, what were they thinking?

reasons behind some new-product failures seem pretty obvious. Try the following on for size:3

Author I Companies can't just Comment | hope that they'll stumble across good new products. Instead, they must develop a systematic new-product development process.

Idea generation

The systematic search for new-product ideas.

New-product development starts with good new-product ideas—lots el them. For example, a recent IBM online "Innovation Jam" generated 46,000 ideas,of which IBM planned to develop only 10,

Concept development and testing

The New-Product Development

Process (pp 283-292)

Companies face a problem—they must develop new products, but the odds weigh heavily against success. In all, to create successful new products, a company must understand its consumers, markets, and competitors and develop products that deliver superior value to customers. It must carry out strong new-product planning and set up a systematic, customer-driven new-product development process for finding and growing new products. w Figure 9.1 shows the eight major steps in this process.

Idea Generation

New-product development starts with idea generation—the systematic search for new-product ideas. A company typically generates hundreds of ideas, even thousands, in order to find a few good ones. For example, IBM recently held an "Innovation Jam"—a kind of online suggestion box—in which it invited IBM and customer employees worldwide to submit ideas for new products and services. The mammoth brainstorming session generated some 46,000 ideas from 150,000 people in more than 160 countries over three days. Since the jam fest, however, IBM has whittled down this surge of ideas to only 10 products, businesses, and services that it plans to develop.4

Concept development and testing

Marketing strategy development

Marketing strategy development

Whereas the first step of this process generates a large number of new-product ideas, the remaining steps reduce that number and develop the best ideas Into profitable products.

* FIGURE | 9,1 Major Stages in New-Product Development

Whereas the first step of this process generates a large number of new-product ideas, the remaining steps reduce that number and develop the best ideas Into profitable products.

Samsung Value Innovation Program Center

Internal new-product idea sources: Samsung built a special Value Innovation Program Center in which company researchers, engineers, and designers comingle to come up with creative new-product ideas.

Major sources of new-product ideas include internal sources and external sources such as customers, competitors, distributors and suppliers, and others.

Internal Idea Sources

Using internal sources, the company can find new ideas through formal research and development. However, in one recent survey, 750 global CEOs reported that only 14 percent of their innovation ideas came from traditional R&D. Instead, 41 percent said employees and

36 percent said customers.5

Thus, companies can pick the brains of employees—from executives to scientists, engineers, and manufacturing staff to salespeople. Using today's new Web 2.0 technology, many companies are making it everybody's business to come up with great ideas. For example, Cisco has set up an internal wiki called Idea Zone or I-Zone, through which any Cisco employee can propose an idea for a new product or comment on or modify someone else's proposed idea. Since its inception, I-Zone has generated more than 400 business ideas, and another 10,000 people have added to those ideas. Cisco selects ideas that draw the most activity for further development. So far 12 I-Zone ideas have reached the project stage and four new Cisco business units have been formed.6

Some companies have developed successful "intrapreneurial" programs that encourage employees to think up and develop new-product ideas. For example, A Samsung built a special Value Innovation Program (VIP) Center in Suwon, South Korea, to encourage and support internal new-product innovation.

The VIP Center is the total opposite of Samsung's typical office facilities—which feature gray computers on gray desks inside gray walls— where workers adhere to strict Confucian traditions and would never dream of questioning a superior or making a wacky suggestion. Instead, the VIP Center features workrooms, dorm rooms, training rooms, a kitchen, and a basement filled with games, a gym, and sauna. Grass sprouts from the ceilings, doors are covered with funhouse mirrors, and walls are covered with chalk drawings of ideas. Inside the center, Samsung researchers, engineers, and designers sport Viking and bumblebee hats, play with Elmo toys and inflatable dolphins, and throw around ideas without regard to rank. Recent ideas sprouting from the VIP Center include a 102-inch plasma HDTV and a process to reduce material costs on a multifunction printer by 30 percent. The center has helped Samsung, once know as the maker of cheap knock-off products, become one of the world's most innovative and profitable consumer electronics companies.7

External Idea Sources

Companies can also obtain good new-product ideas from any of a number of external sources. For example, distributors and suppliers can contribute ideas. Distributors are close to the market and can pass along information about consumer problems and new-product possibilities. Suppliers can tell the company about new concepts, techniques, and materials that can be used to develop new products. Competitors are another important source. Companies watch competitors' ads to get clues about their new products. They buy competing new products, take them apart to see how they work, analyze their sales, and decide whether they should bring out a new product of their own. Other idea sources include trade magazines, shows, and seminars; government agencies; advertising agencies; marketing research firms; university and commercial laboratories; and inventors.

Some companies seek the help of outside new-product consultancies and design firms, such as ZIBA, Frog Design, or IDEO, for new-product ideas and designs. For example, when Cranium needed innovative new ideas for extending its popular family board game, it turned to award-winning design firm IDEO. A team of IDEO and Cranium designers worked together to develop a suite of games focused on Cranium's four characters: Word Worm, Creative Cat, Data Head, and Star Performer. The design team began with the core premise that the games should focus on laughter, togetherness, and creativity rather than competition. For inspiration, the team observed people who exemplified the Cranium characters, and then tested prototypes in actual game-playing sessions with families. Based on customer insights gained from these observations and interactions, the IDEO-Cranium team developed four popular new character-based games: Tune Twister (Star Performer), Super Showdown (Data Head), Doodle Tales (Creative Cat), and Wacky Words (Word Worm).8

Many companies are also turning to online collaborative communities to help solve new-product problems. For example, collaborative network InnoCentive puts its corporate clients ("seekers") in touch with its global network of more than 100,000 scientists ("solvers"). The seeker companies post "challenges," and solvers can earn up to $100,000 for providing solutions. For instance, P&G used InnoCentive to find a cost-effective way to print the trivia questions on Pringles Prints, snack chips with messages printed on them, dramatically reducing the time and expense of launching its new product.9

Says P&G's CEO, "Someone outside your organization today knows how to answer your specific question, solve your specific problem, or take advantage of your current opportunity better than you do. You need to find them and find a way to work collaboratively and productively with them." It is estimated that 35 percent of P&G's new products today have elements that originated outside the company, up from 15 percent in 2000.10

Perhaps the most important source of new-product ideas is customers themselves. The company can analyze customer questions and complaints to find new products that better solve consumer problems. For example, the office-supply company Staples developed its Easy Rebate program in response to concerns expressed by small-business customers that lost rebates were one of their biggest frustrations.11

Company engineers or salespeople can meet with and work alongside customers to get suggestions and ideas. The toymaker ALEGO did just that when it invited 250 LEGO train-set enthusiasts to visit one of its offices to assess new designs. "We pooh-poohed them all," says one LEGO fan, an Intel engineer. But the group gave LEGO lots of new ideas, and the company put them to good use. The result was the Santa Fe Super Chief train set. Thanks to word-of-mouth endorsements from the 250 enthusiasts, LEGO sold out the first 10,000 units in less than two weeks with no additional marketing.12

Other companies actively solicit ideas from customers and turn customers into cocre-ators. For example, Dell set up an interactive Web site forum called IdeaStorm that asks consumers for insights on how to improve its product offering. Users post suggestions, the community votes, and the most popular ideas rise to the top. Only two months after launch, the site had received some 3,850 ideas and 236,000 votes. Michael Dell sees such customer-driven innovation as a key to reenergizing Dell. "We are our best when we are hearing directly from customers," says Dell. "We listened, learn, and then improve and innovate based on what our customers want."13

Finally, customers often create new products and uses on their own, and companies can benefit by putting them on the market. For example, for years customers were spreading the word that Avon Skin-So-Soft bath oil and moisturizer was also a terrific bug repellent. Whereas some consumers were content simply to bathe in water scented with the fragrant oil, others carried it in their backpacks to mosquito-infested campsites or kept a bottle on the decks of their beach houses. Avon turned the idea into a complete line of Skin-So-Soft Bug Guard products,

Lego Santa
Product ideas from customers: Advice from 250 train-set enthusiasts resulted in the LEGO Santa Fe Super Chief set, a blockbuster new product that sold out in less than two weeks.

including Bug Guard Mosquito Repellant Moisturizing Towelettes and Bug Guard Plus, a combination moisturizer, insect repellent, and sunscreen.14

Although customer input on new products yields many benefits, companies must be careful not to rely too heavily on what customers say. For some products, especially highly technical ones, customers may not know what they need. "You can't ask people what they want if it's around the next corner," says Apple CEO Steve Jobs. And even when they think they know what they want, adds an innovation management consultant, "Merely giving people what they want isn't always enough. People want to be surprised; they want something that's better than they imagined, something that stretches them in what they like."15

Idea Screening

The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to reduce that number. The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible. Product development costs rise greatly in later stages, so the company wants to go ahead only with the product ideas that will turn into profitable products.

Many companies require their executives to write up new-product ideas in a standard format that can be reviewed by a new-product committee. The write-up describes the product or service, the proposed customer value proposition, the target market, and the competition. It makes some rough estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. The committee then evaluates the idea against a set of general criteria.

One marketing expert proposes an R-W-W ("real, win, worth it") new-product screening framework that asks three questions. First, Is it real? Is there a real need and desire for the product and will customers buy it? Is there a clear product concept and will the product satisfy the market? Second, Can we win? Does the product offer a sustainable competitive advantage? Does the company have the resources to make the product a success? Finally, Is it worth doing? Does the product set the company's overall growth strategy? Does it offer sufficient profit potential? The company should be able to answer yes to all three R-W-W questions before developing the new-product idea further.16

Concept Development and Testing

An attractive idea must be developed into a product concept. It is important to distinguish between a product idea, a product concept, and a product image. A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or potential product.

Concept Development

Suppose that a car manufacturer has developed a practical battery-powered all-electric car. ▲ Its initial prototype is a sleek, sporty convertible that sells for about $100,000.17 However, later this decade, it plans to introduce more-affordable, mass-market models that will complete with today's hybrid-powered cars. This 100 percent electric car will accelerate from 0 to 60 in 4 seconds, travel more than 400 kilometers on a single charge, recharge from a normal 120-volt electrical outlet, and cost about one penny per mile to power.

Looking ahead, the marketer's task is to develop this new product into alternative product concepts, find out how attractive each concept is to customers, and choose the best one. It might create the following product concepts for the electric car:

• Concept 1 An affordably priced midsize car designed as a second family car to be used around town for running errands and visiting friends.

Idea screening

Screening new-product ideas in order to spot good ideas and drop poor ones as soon as possible.

Product concept

A detailed version of the new-product idea stated in meaningful consumer terms.

Concept development: The initial Tesla electric car goes from 0 to 60 mph in 4 seconds, travels more than 400 kilometers on a single charge, and costs about a penny a mile to power.

Concept testing

Testing new-product concepts with a group of target consumers to find out if the concepts have strong consumer appeal.

Marketing strategy development

Designing an initial marketing strategy for a new product based on the product concept.

• Concept 2 A midpriced sporty compact appealing to young singles and couples.

• Concept 3 A "green" car appealing to environmentally conscious people who want practical, low-polluting transportation.

• Concept 4 A high-end midsize utility vehicle appealing to those who love the space SUVs provide but lament the poor gas mileage.

Concept Testing

Concept testing calls for testing new-product concepts with groups of target consumers. The concepts may be presented to consumers symbolically or physically. Here, in words, is concept 3:

An efficient, fun-to-drive, battery-powered compact car that seats four. This 100 percent electric wonder provides practical and reliable transportation with no pollution. It goes more than 250 miles on a single charge and costs pennies per mile to operate. It's a sensible, responsible alternative to today's pollution-producing gas-guzzlers. It's priced, fully equipped, at $25,000.

Many firms routinely test new-product concepts with consumers before attempting to turn them into actual new products. For some concept tests, a word or picture description might be sufficient. However, a more concrete and physical presentation of the concept will increase the reliability of the concept test. After being exposed to the concept, consumers then may be asked to react to it by answering questions such as those in • Table 9.1.

The answers to such questions will help the company decide which concept has the strongest appeal. For example, the last question asks about the consumer's intention to buy. Suppose 2 percent of consumers say they "definitely" would buy, and another 5 percent say "probably." The company could project these figures to the full population in this target group to estimate sales volume. Even then, the estimate is uncertain because people do not always carry out their stated intentions.

Marketing Strategy Development

Suppose the car maker finds that concept 3 for the fuel-cell-powered electric car tests best. The next step is marketing strategy development, designing an initial marketing strategy for introducing this car to the market.

The marketing strategy statement consists of three parts. The first part describes the target market; the planned value proposition; and the sales, market share, and profit goals for the first few years. Thus:

The target market is younger, well-educated, moderate- to high-income individuals, couples, or small families seeking practical, environmentally responsible transportation. The car will be positioned as more fun to drive and less polluting than today's internal combustion engine or hybrid cars. The company will aim to sell 100,000 cats in the first year, at a loss of not more than $15 million. In the second year, the company will aim for sales of 120,000 cars and a profit of $25 million.

Questions for Battery-Powered Electric Car Concept Test

1. Do you understand the concept of a battery-powered electric car?

2. Do you believe the claims about the car's performance?

3. What are the major benefits of the battery-powered electric car compared with a conventional car?

4. What are its advantages compared with a gas-electric hybrid car?

5. What improvements in the car's features would you suggest?

6. For what uses would you prefer a battery-powered electric car to a conventional car?

7. What would be a reasonable price to charge for the car?

8. Who would be involved in your decision to buy such a car? Who would drive it?

9. Would you buy such a car (definitely, probably, probably not, definitely not)?

Business analysis

A review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the company's objectives.

Product development

Developing the product concept into a physical product in order to ensure that the product idea can be turned into a workable market offering.

The second part of the marketing strategy statement outlines the product's planned price, distribution, and marketing budget for the first year:

The battery-powered electric car will be offered in three colors—red, green, and blue—and will have a full set of accessories as standard features. It will sell at a retail price of $25,000—with 15 percent off the list price to dealers. Dealers who sell more than 10 cars per month will get an additional discount of 5 percent on each car sold that month. A marketing budget of $50 million will be split 50-50 between a national media campaign and local event marketing. Advertising and Web site will emphasize the car's fun spirit and low emissions. During the first year, $100,000 will be spent on marketing research to find out who is buying the car and their satisfaction levels.

The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and marketing mix strategy:

We intend to capture a 3 percent long-run share of the total auto market and realize an after-tax return on investment of 15 percent. To achieve this, product quality will start high and be improved over time. Price will be raised in the second and third years if competition permits. The total marketing budget will be raised each year by about 10 percent. Marketing research will be reduced to $60,000 per year after the first year.

Business Analysis

Once management has decided on its product concept and marketing strategy, it can evaluate the business attractiveness of the proposal. Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company's objectives. If they do, the product can move to the product development stage.

To estimate sales, the company might look at the sales history of similar products and conduct market surveys. It can then estimate minimum and maximum sales to assess the range of risk. After preparing the sales forecast, management can estimate the expected costs and profits for the product, including marketing, R&D, operations, accounting, and finance costs. The company then uses the sales and costs figures to analyze the new product's financial attractiveness.

Product Development

So far, for many new-product concepts, the product may have existed only as a word description, a drawing, or perhaps a crude mock-up. If the product concept passes the business test, it moves into product development. Here, R&D or engineering develops the product concept into a physical product. The product development step, however, now calls for a large jump in investment. It will show whether the product idea can be turned into a workable product.

The R&D department will develop and test one or more physical versions of the product concept. R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly and at budgeted costs. Developing a successful prototype can take days, weeks, months, or even years depending on the product and prototype methods.

Often, products undergo rigorous tests to make sure that they perform safely and effectively, or that consumers will find value in them. Companies can do their own product testing or outsource testing to other firms that specialize in testing. Here are some examples of such product tests:18

Thunk. Thunk. Thunk. Behind a locked door in the basement of Louis Vuitton's elegant Paris headquarters, a mechanical arm hoists a brown-and-tan handbag a half-meter off the floor—then drops it. The bag, loaded with an 8-pound weight, will be lifted and dropped, over and over again, for four days. This is Vuitton's test laboratory, a high-tech torture chamber for its fabled luxury goods. Another piece of lab equipment bombards handbags with ultraviolet rays to test resistance to fading. Still another tests zippers by tugging them open and shutting them 5,000 times. There's even a mechanized mannequin hand, with a Vuitton charm bracelet around its wrist, being shaken vigorously to make sure none of the charms fall off.

Product Testing Gillette

A Product testing: Gillette uses employee-volunteers to test new shaving products—"We bleed so you'll get a good shave at home, says a Gillette employee.

A new product must have the required functional features and also convey the intended psychological characteristics. The battery-powered electric car, for example, should strike consumers as being well built, comfortable, and safe. Management must learn what makes consumers decide that a car is well built. To some consumers, this means that the car has "solid-sounding" doors. To others, it means that the car is able to withstand heavy impact in crash tests. Consumer tests are conducted in which consumers test-drive the car and rate its attributes.

Test Marketing

At Gillette, almost everyone gets involved in new-product testing. A Every working day at Gillette, 200 volunteers from various departments come to work unshaven, troop to the second floor of the company's gritty South Boston plant, and enter small booths with a sink and mirror. There they take instructions from technicians on the other side of a small window as to which razor, shaving cream, or aftershave to use. The volunteers evaluate razors for sharpness of blade, smoothness of glide, and ease of handling. In a nearby shower room, women perform the same ritual on their legs, underarms, and what the company delicately refers to as the "bikini area." "We bleed so you'll get a good shave at home," says one Gillette employee.

Simulated Markets Virtual Online Stores

A Test marketing: KFC test marketed its new Kentucky Grilled Chicken product for three years before rolling it out widely. Says the chain's president, "We had to get it right."

Test marketing

The stage of new-product development in which the product and marketing program are tested in realistic market settings.

If the product passes concept and product tests, the next step is test marketing, the stage at which the product and marketing program are introduced into realistic market settings. Test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction. It lets the company test the product and its entire marketing program—targeting and positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels.

The amount of test marketing needed varies with each new product. Test marketing costs can be high, and it takes time that may allow competitors to gain advantages. When the costs of developing and introducing the product are low, or when management is already confident about the new product, the company may do little or no test marketing. In fact, test marketing by consumer-goods firms has been declining in recent years. Companies often do not test-market simple line extensions or copies of successful competitor products.

However, when introducing a new product requires a big investment, when the risks are high, or when management is not sure of the product or marketing program, a company may do a lot of test marketing. A For instance, KFC will soon introduce a major new product—Kentucky Grilled Chicken. Although the fast-food chain built its legacy on serving crispy, seasoned fried chicken, it hopes that the new product will lure back health-conscious consumers who dropped fried chicken from their diets. "This is transformational for our brand," says KFC's chief food innovation officer. Given the importance of the decision, KFC will have conducted more than three years of product and market testing before rolling Kentucky Grilled Chicken out widely. "You might say, 'what took you so long,'" says the chain's president. "I've asked that question a couple of times myself. The answer is we had to get it right."19

Although test-marketing costs can be high, they are often small when compared with the costs of making a major mistake. Still, test marketing doesn't guarantee success. For example, Procter & Gamble tested its Fit produce rinse heavily for

A Test marketing: KFC test marketed its new Kentucky Grilled Chicken product for three years before rolling it out widely. Says the chain's president, "We had to get it right."

five years. Although market tests suggested the product would be successful, P&G pulled the plug on it shortly after its introduction.20

When using test marketing, consumer products companies usually choose one of three approaches—standard test markets, controlled test markets, or simulated test markets.

Standard Test Markets

Using standard test markets, the company finds a small number of representative test cities, conducts a full marketing campaign in these cities, and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. The results are used to forecast national sales and profits, discover potential product problems, and fine-tune the marketing program. KFC used standard test markets for its new Kentucky Grilled Chicken in a number of cities. At these sites, KFC tested both the new product and its full marketing program, including new store signage and a series of ads.

Standard test markets have some drawbacks. They can be very costly and they may take a long time. Moreover, competitors can monitor test market results or interfere with them by cutting their prices in test cities, increasing their promotion, or even buying up the product being tested. Finally, test markets give competitors a look at the company's new product well before it is introduced nationally. Thus, competitors may have time to develop defensive strategies, and may even beat the company's product to the market.

Despite these disadvantages, standard test markets are still the most widely used approach for major in-market testing. However, many companies today are shifting toward quicker and cheaper controlled and simulated test marketing methods.

Controlled Test Markets

Several research firms keep controlled panels of stores that have agreed to carry new products for a fee. Controlled test marketing systems such as ACNielsen's Scantrack and Information Resources, Inc.'s (IRI) BehaviorScan track individual consumer behavior for new products from the television set to the checkout counter.

In each BehaviorScan market, IRI maintains a panel of shoppers who report all of their purchases by showing an identification card at checkout in participating stores and by using a handheld scanner at home to record purchases at non-participating stores. Within test stores, IRI controls such factors as shelf placement, price, and in-store promotions for the product being tested. IRI also measures TV viewing in each panel household and sends special commercials to panel member television sets to test their affect on shopping decisions. Direct mail promotions can also be tested.21

Detailed scanner information on each consumer's purchases is fed into a central computer, where it is combined with the consumer's demographic and TV viewing information and reported daily. Thus, BehaviorScan can provide store-by-store, week-by-week reports on the sales of tested products. Such panel purchasing data enables in-depth diagnostics not possible with retail point-of-sale data alone, including repeat purchase analysis, buyer demographics, and earlier, more accurate sales forecasts after just 12 to 24 weeks in market. Most importantly, the system allows companies to evaluate their specific marketing efforts.

Controlled test markets, such as BehaviorScan, usually cost less than standard test markets. Also, because retail distribution is "forced" in the first week of the test, controlled test markets can be completed much more quickly than standard test markets. As in standard test markets, controlled test markets allow competitors to get a look at the company's new product. And some companies are concerned that the limited number of controlled test markets used by the research services may not be representative of their products' markets or target consumers. However, the research firms are experienced in projecting test market results to broader markets and can usually account for biases in the test markets used.

Simulated Test Markets

Companies can also test new products in a simulated shopping environment. The company or research firm shows ads and promotions for a variety of products, including the new product being tested, to a sample of consumers. It gives consumers a small amount of money and invites them to a real or laboratory store where they may keep the money or use it to buy items. The researchers note how many consumers buy the new product and competing brands.

This simulation provides a measure of trial and the commercial's effectiveness against competing commercials. The researchers then ask consumers the reasons for their purchase or nonpurchase. Some weeks later, they interview the consumers by phone to determine product attitudes, usage, satisfaction, and repurchase intentions. Using sophisticated computer models, the researchers then project national sales from results of the simulated test market. Recently, some marketers have begun to use interesting new high-tech approaches, such as virtual reality and the Internet, to simulated test market research.

Simulated test markets overcome some of the disadvantages of standard and controlled test markets. They usually cost much less, can be run in eight weeks, and keep the new product out of competitors' view. Yet, because of their small samples and simulated shopping environments, many marketers do not think that simulated test markets are as accurate or reliable as larger, real-world tests. Still, simulated test markets are used widely, often as "pretest" markets. Because they are fast and inexpensive, they can be run to quickly assess a new product or its marketing program.

Many marketers are now using new simulated marketing technologies to reduce the costs of test marketing and to speed up the process. A For example, snack maker Frito-Lay worked with research firm Decision Insight to create an online virtual convenience store in which to test new products and marketing ideas.22

Decision Insight's SimuShop online shopping environment lets Frito-Lay's marketers test shopper reactions to different extensions, shelf placements, pricing, and packaging of its Lay's, Doritos, Cheetos, and Fritos [snack] brands in a variety of store setups without investing huge amounts of time and money on actual in-store research in different locations. Recruited shoppers visit the online store, browse realistic virtual shelves featuring Frito-Lay's and competing products, click on individual products to view them in more detail, and select products to put in their carts. When the shopping is done, selected customers are questioned in one-on-one, on-screen interviews about why they chose the products they did. Watching the entire decision process unfold gives Frito-Lay marketers reams of information about what would happen in the real world. With 200-some bags of Frito-Lay products sitting on a typical store shelf, the company doesn't have the luxury of test marketing in actual market settings. "For us, that can only really be done virtually," says a Frito-Lay marketer. The SimuShop tests produce a 90 percent or better correlation to real shopper behavior when compared with later real-world data.

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A New test marketing technologies: Frito-Lay worked with research firm Decision Insight to create an online virtual convenience store in which to test new snack products and marketing ideas.

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Get Paid Taking Surveys In Your Spare Time

Get Paid Taking Surveys In Your Spare Time

You won’t want to miss this. Get Paid Taking Surveys In Your Spare Time. I know what you’re thinking, ‘Oh great, another get rich quick scheme’. WRONG! This is your guide to making money from home by participating in paid surveys on the internet.

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  • max
    How does Decision Insight SimuShop work?
    8 years ago
  • guendalina
    HOW MANY COUNTRIES SALE FRITO LAY?
    5 years ago

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