In testing consumer products, the company seeks to estimate four variables: trial, first repeat, adoption, and purchase frequency. The company hopes to find all these variables at high levels. In some cases, it will find many consumers trying the product chapter 11
Developing New Market Offerings but few rebuying it. Or it might find high permanent adoption but low purchase frequency (as with gourmet frozen foods).
Here we describe the major methods of consumer-goods market testing, from the least to the most costly.
Sales-Wave Research. In sales-wave research, consumers who initially try the product at no cost are reoffered the product, or a competitor's product, at slightly reduced prices. They might be reoffered the product as many as three to five times (sales waves), with the company noting how many customers selected that company's product again and their reported level of satisfaction. Sales-wave research can also include exposing consumers to one or more advertising concepts to see the impact of that advertising on repeat purchase.
Sales-wave research can be implemented quickly, conducted with a fair amount of security, and carried out without final packaging and advertising. However, sales-wave research does not indicate the trial rates that would be achieved with different sales-promotion incentives, because the consumers are preselected to try the product. Nor does it indicate the brand's power to gain distribution and favorable shelf position.
Simulated Test Marketing. Simulated test marketing calls for finding 30 to 40 qualified shoppers and questioning them about brand familiarity and preferences in a specific product category. These people are then invited to a brief screening of both well-known and new commercials or print ads. One ad advertises the new product, but it is not singled out for attention. Consumers receive a small amount of money and are invited into a store where they may buy any items. The company notes how many consumers buy the new brand and competing brands. This provides a measure of the ad's relative effectiveness against competing ads in stimulating trial. Consumers are asked the reasons for their purchases or nonpurchases. Those who did not buy the new brand are given a free sample. Some weeks later, they are reinterviewed by phone to determine product attitudes, usage, satisfaction, and repurchase intention and are offered an opportunity to repurchase any products.
This method has several advantages. It gives fairly accurate results on advertising effectiveness and trial rates (and repeat rates if extended) in a much shorter time and at a fraction of the cost of using real test markets. Pretests often take only three months and may cost $250,000.30 The results are incorporated into new-product forecasting models to project ultimate sales levels. Marketing research firms report surprisingly accurate predictions of sales levels of products that are subsequently launched in the market.31
Controlled Test Marketing. In this method, a research firm manages a panel of stores that will carry new products for a fee. The company with the new product specifies the number of stores and geographic locations it wants to test. The research firm delivers the product to the participating stores and controls shelf position; number of facings, displays, and point-of-purchase promotions; and pricing. Sales results can be measured through electronic scanners at the checkout. The company can also evaluate the impact of local advertising and promotions during the test.
Controlled test marketing allows the company to test the impact of in-store factors and limited advertising on buying behavior. A sample of consumers can be interviewed later to give their impressions of the product. The company does not have to use its own sales force, give trade allowances, or "buy" distribution. However, controlled test marketing provides no information on how to sell the trade on carrying the new product. This technique also exposes the product and its features to competitors' scrutiny.
Test Markets. The ultimate way to test a new consumer product is to put it into full-blown test markets. The company chooses a few representative cities, and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure. The company puts on a full advertising and promotion campaign in these markets similar to the one that it would use in national marketing. A full-scale test can cost over $1 million, depending on the number of test cities, the test duration, and the amount of data the company wants to collect.
Management faces several questions:
Marketing 1. How many test cities? Most tests use between two and six cities. The greater
34aJ Strategies the maximum possible loss, the greater the number of contending marketing strategies, the greater the regional differences, and the greater the chance of test-market interference by competitors, the greater the number of cities that should be used.
2. Which cities? Each company must develop test-city selection criteria. One company looks for test cities that have diversified industry, good media coverage, cooperative chain stores, average competitive activity, and no evidence of being overtested.
3. Length of test? Market tests last anywhere from a few months to a year. The longer the product's average repurchase period, the longer the test period necessary to observe repeat-purchase rates. This period should be cut down if competitors are rushing to the market.
4. What information? Warehouse shipment data will show gross inventory buying but will not indicate weekly sales at the retail level. Store audits will show retail sales and competitors' market shares but will not reveal buyer characteristics. Consumer panels will indicate which people are buying which brands and their loyalty and switching rates. Buyer surveys will yield in-depth information about consumer attitudes, usage, and satisfaction.
5. What action to take? If the test markets show high trial and repurchase rates, the product should be launched nationally. If the test markets show a high trial rate and a low repurchase rate, customers are not satisfied and the product should be redesigned or dropped. If the test markets show a low trial rate and a high repurchase rate, the product is satisfying but more people have to try it. This means increasing advertising and sales promotion. If trial and repurchase rates are both low, the product should be abandoned.
Test marketing permits testing the impact of alternative marketing plans. Colgate-Palmolive used a different marketing mix in each of four cities to market a new soap product: (1) an average amount of advertising coupled with free samples distributed door to door, (2) heavy advertising plus samples, (3) an average amount of advertising linked with mailed redeemable coupons, and (4) an average amount of advertising with no special introductory offer. The third alternative generated the best profit level, although not the highest sales level.
In spite of the benefits of test marketing, many companies question its value today. In a fast-changing marketplace, companies are eager to get to market first. Test marketing slows them down and reveals their plans to competitors. Procter & Gamble began testing a ready-to-spread Duncan Hines frosting. General Mills took note and rushed out its own Betty Crocker brand, which now dominates the category. Furthermore, aggressive competitors increasingly take steps to spoil the test markets. When Pepsi tested its Mountain Dew sport drink in Minneapolis, Gatorade counterattacked furiously with coupons and ads.32
Many companies today are skipping test marketing and relying on faster and more economical market-testing methods. General Mills now prefers to launch new products in perhaps 25 percent of the country, an area too large for rivals to disrupt. Managers review retail scanner data, which tell them within days how the product is doing and what corrective fine-tuning to do. Colgate-Palmolive often launches a new product in a set of small "lead countries" and keeps rolling it out if it proves successful.
Nonetheless, managers should consider all the angles before deciding to dispense with test marketing. In this case, not testing a formula modification before the product launch had disastrous—and soggy—results:
■ Na F C a Nabisco hit a marketing home run with its Teddy Grahams, teddy-bear-shaped graham crackers in several different flavors. So, the company decided to extend Teddy Grahams into a new area. In 1989, it introduced chocolate, cinnamon, and honey versions of Breakfast Bears Graham Cereal. When the product came out, however, consumers didn't like the taste enough, so the product developers went back to the kitchen and modified the formula, but didn't test it. The result was a disaster. Although the cereal may n chapter 11
Developing New Market Offerings have tasted better, it no longer stayed crunchy in milk, as the advertising on the box promised. Instead, it left a gooey mess of graham mush on the bottom of cereal bowls. Supermarket managers soon refused to restock the cereal, and Nabisco executives decided it was too late to reformulate the product again. So a promising new product was killed through haste to get it to market.33
Was this article helpful?
To Build Your Business It Is Crucial That You Have The Correct Info And Tools And Learn How To Build A Correct Business Plan! This is one area you must pay attention to… There are many areas of a business plan that you may not know about but need to know about. For instance... you may have no idea about an executive summary.