Business Goods Market Testing

Business goods can also benefit from market testing. Expensive industrial goods and new technologies will normally undergo alpha testing (within the company) and beta testing (with outside customers). During beta testing, the vendor's technical people observe how test customers use the product, a practice that often exposes unanticipated problems of safety and servicing and alerts the vendor to customer training and servicing requirements. The vendor can also observe how much value the equipment adds to the customer's operation as a clue to subsequent pricing. The vendor will ask the test customers to express their purchase intention and other reactions after the test.

The test customers benefit in several ways: They can influence product design, gain experience with the new product ahead of competitors, receive a price break in return for cooperation, and enhance their reputation as technological pioneers. Vendors must carefully interpret the beta test results because only a small number of test customers are used, they are not randomly drawn, and the tests are somewhat customized to each site. Another risk is that test customers who are unimpressed with the product may leak unfavorable reports about it.

A second common test method for business goods is to introduce the new product at trade shows. Trade shows draw a large number of buyers, who view many new products in a few concentrated days. The vendor can observe how much interest buyers show in the new product, how they react to various features and terms, and how many express purchase intentions or place orders. Book publishers, for instance, regularly launch their fall titles at the American Booksellers Association convention each spring. There they display page proofs wrapped in dummy book covers. If a large bookstore chain objects to a cover design or title of a promising new book, the publisher will consider changing the cover or title. The disadvantage of trade shows is that they reveal the product to competitors; therefore, the vendor should be ready to launch the product soon after the trade show.

New industrial products can be tested in distributor and dealer display rooms, where they may stand next to the manufacturer's other products and possibly competitors' products. This method yields preference and pricing information in the product's normal selling atmosphere. The disadvantages are that the customers might want to place early orders that cannot be filled, and those customers who come in might not represent the target market.

Industrial manufacturers come close to using full test marketing when they give a limited supply of the product to the sales force to sell in a limited number of areas that receive promotion support and printed catalog sheets. In this way, management can make a more informed decision about commercializing the product.

COMME CIALI A ION

If the company goes ahead with commercialization, it will face its largest costs to date. The company will have to contract for manufacture or build or rent a full-scale manufacturing facility. Plant size will be a critical decision. The company can build a smaller plant than called for by the sales forecast, to be on the safe side. That is what Quaker Oats did when it launched its 100 Percent Natural breakfast cereal. The demand so exceeded the company's sales forecast that for about a year it could not supply enough product to the stores. Although Quaker Oats was gratified with the response, the low forecast cost it a considerable amount of profit.

Another major cost is marketing. To introduce a major new consumer packaged good into the national market, the company may have to spend between $20 mil-Developing lion and $80 million in advertising and promotion in the first year. In the introduc-

Marketing tion of new food products, marketing expenditures typically represent 57 percent of

Strategies sales during the first year.

In the movie business, it's not unusual for the cost of marketing a movie to eclipse the cost of making it, particularly for what Hollywood calls "tentpole" films, those big summer blockbusters that can carry the rest of the studio's projects on the strength of their revenues. In the decade between 1987 and 1997, the average cost of making a movie went from $20 million to $53 million, but marketing costs zoomed from $6.7 million to $22 million. Here's a story that illustrates what money and marketing can do for a new movie—and what it can't do:

■ P E a During the summer of 1998, you probably I

noticed the giant billboards with the teasing, double entendre, "Size does matter." However, you may have already forgotten the movie that the billboards were touting. Sony Pictures spent $125 million to make its summer blockbuster, Godzilla, and some $200 million to make sure it was a hit. Actually, Sony's 250 marketing partners, such as Taco Bell, put up $150 million of that $200 million for licensing rights to Godzilla backpacks, T-shirts, and other scaly paraphernalia. The huge ad campaign infiltrated billboards and buses, buttons and T-shirts, TV and radio. Yet, for all of Sony's marketing muscle, the only truly big thing about Godzilla was that it was a big flop. Three weeks after it opened, it had grossed only $110 million, about half of what Sony had predicted. Critics panned the movie and audiences agreed. However, Sony's claim that "Size does matter" certainly rings true when it comes to marketing movies. When Sony's top brass saw the initial screening and realized Godzilla would be a bomb, they went out and spent even more money on marketing. By luring as many moviegoers as possible into theaters early, Sony's gamble paid off. It would end up grossing more than the $175 million it spent to make and market Godzilla.34

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Responses

  • jack
    How trade shows can be used in the market testing of industrial goods?
    9 years ago
  • oliver
    How trade shows can be used in the marketing testing of industrial goods?
    9 years ago

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