If the product passes functional and consumer tests, the next step is test marketing, the stage at which the product and marketing programme are introduced into more 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 programme - positioning strategy, advertising, test marketing The stage of new-product development where the product and marketingprogramme are tested in more realistic market settings.
distribution, pricing, branding and packaging, and budget levels - in real market situations. The company uses test marketing to learn how consumers and dealers will react to handling, using and repurchasing the product. The results can be used to make better sales and profit forecasts. Thus a good test market can provide a wealth of information about the potential success of the product and marketing programme.
The amount of test marketing needed varies with each new product. Test marketing costs can be enormous and test marketing takes time that may allow competitors to gain advantages. When the costs of developing and introducing the product arc low or when management is already confident that the new product will succeed, the company may do little or no test marketing. Companies often do not test market simple line extensions, minor modifications of current products or copies of successful competitors' products. However, when the new-product introduction requires a large investment, or when management is not sure of the product or marketing programme, the company may do a lot of test marketing. For example, Lever USA spent two years testing its highly successful Lever 2000 bar soap in Atlanta before introducing it internationally.
In principle, the idea of test marketing also applies to new service products. For example, an airline company preparing to introduce a secure, cost-saving system of electronic ticketing may try out the new service first on domestic routes before rolling out the service to international flights. Or, it might offer the ticket-less system on its busiest routes and restrict the test to its most frequent travellers. The system's effectiveness and customers' acceptance and reactions can then be gauged prior to making the decision to extend the service to cover all of its domestic or global networks.
Consider another example. In July 1995, Mondex International, a consortium of 17 international banks and telecommunication companies from the United Kingdom, Asia, Australasia and North America, pilot tested Mondex - a 'smart card' that acts as a replica of cash - in Swindon, some 100 km west of London, with some 10,000 people, mainly participating NatWest Bank and Midland Rank customers. A second test site - Exeter University, in the west of England -was later added to assess students' and staffs use of the card as a university identification card, library and building security card as well as a payment card for everything from meals to laundry. Mondex officials say the card will be launched nationwide in the UK in 1998. Meanwhile, tests are under way in other consortia members' home countries to assess the international acceptance of the card.ls
Whether or not a company decides to test-market, and the amount of testing it does, depends on the cost and risk of introducing the product on the one hand, and on the testing costs and time pressures on the other. Although the costs of test marketing can be high, they are often small when compared to the costs of making a major mistake. For example, as illustrated in the 'chapter preview' in Chapter 4, Unilever learned a costly lesson when it decided to skip formal test marketing for its new European laundry detergent, Power, and forged ahead with its £200 million, Europe-wide launch. The company spent another £70 million on the withdrawal of the defective, clothing-annihilating Power detergent a year after its introduction.
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. It then uses the results to forecast national sales and profits, to discover potential product problems and to fine-tune the marketing programme.
Standard market tests have some drawbacks. They can be costly (the average standard test market costs around £2 million and can go much higher) and they may take a long time - some last as long as three years. If the testing proves to be unnecessary, the company will have lost many months of sales and profits. Moreover, eompctitors can monitor test market results or even interfere with them by cutting their prices in test locations, 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 heat the company's product to the market. For example, prior to its launch in the United Kingdom, Carnation Coffee-Mate, a coffee-whitener, was test marketed over a period of six years. This gave rival firm Cadbury ample warning and the opportunity to develop and introduce its own product - Marvel - to compete head on with Coffee-Mate.
Despite these disadvantages, standard test markets are still the most widely used approach for major market testing. However, many companies today are shifting towards quicker and cheaper controlled and simulated test marketing methods.
• Controlled Test Markets
Several research firms keep controlled panels of stores which have agreed to carry new products for a fee. The company with the new product specifies the number of stores and geographical locations it wants. The research firm delivers the product to the participating stores and controls shelf location, amount of shelf space, displays and point-of- pur chase promotions, and pricing according to specified plans. Sales results are tracked to determine the impact of these factors on demand.
Controlled test-marketing systems are particularly well developed in the United States. Systems like Nielsen's Scantraek and Information Resources Inc.'s (1RI) BchaviorScan track individual behaviour from the television set to the checkout counter. IRI, for example, keeps panels of shoppers in carefully selected cities, ft uses microcomputers to measure TV viewing in each panel household and can send special commercials to panel member television sets. Panel consumers buy from co-operating stores and show identification cards when making purchases. Detailed electronic-scanner information on each consumer's purchases is fed into a central computer, where it is combined with the consumers demographic and TV viewing information and reported daily. Thus BehaviorScan can provide store-by-store, week-by-week reports on the sales of new products being tested. And because the scanners record the specific purchases of individual consumers, the system can also provide information on repeat purchases and the ways that different types of consumer are reacting to the new product, its advertising and various other elements of the marketing programme.16
Controlled test markets take less time than standard test markets (six months to a year). However, some companies are concerned that the limited number of small cities and panel consumers used by the research services may not be representative of their products' markets or target consumers. And, as in standard test markets, controlled test markets allow competitors to get a look at the company's new product.
• Simulated Test Markets
Companies also can test new products in a simulated shopping environment. The company or research firm shows, to a sample of consumers, ads and promotions for a variety of products, including the new product being tested. 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 non-purchase. Some weeks later, they interview the consumer 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 to simulated test market research, such ,-is virtual reality and the Internet (see Marketing Highlight 14.2),
Simulated test markets overcome some of the disadvantages of standard and controlled test markets. They usually cost much lews, 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
Virtual Reality Test Marketing: The Future is Now
try and region using the appropriate local products, shelf layouts and currencies. Once the stores arc on-line, a product concept can be quickly tested across locations. Research results, revealing which markets offer the greatest opportunity for a successful launch, can be communicated to headquarters electronically.
Virtual reality research has its limitations. Simulated shopping situations never quite match the real thing. It is not clear how true test participants' responses are in a simulated experience. So what's ahead for virtual reality in marketing? Some pioneers are extremely enthusiastic about the technology - not just as a research tool, but as a place where even real buying and selling can occur. They predict that the virtual store may become a major channel for personal and direet interactions with consumers - interactions that encompass not only research, but sales and service as well. They see great potential for conducting this type of research over the Internet, and virtual stores have become a reality on the Web. As one observer notes, 'This is what I read about in science fiction books when I was growing up. It's the thing of die future.' For many marketers, that future is already ;» virtual reality.
SOURCES: Quotes and extracts from Raymond It. Hurke, 'Virtual shopping: breakthrough in marketing research', Harvard Business Review (March-April 1996), pp. 120-G1: Tom Dellacave, Jr, 'Curing market research headaches', Sales and Marketing Management (July 1996), pp. 84-5; Brian Silverman, 'Get 'ein whilo they're hot', Sales and Marketing MtnutgemtMt (February 1997), pp. 47-8, 52.
they are fast and inexpensive, they can be run to assess quickly a new product or its marketing programme. If the pretest results are strongly positive, the product might be introduced without further testing. If the results are very poor, the product might be dropped or substantially redesigned and retested. If the results are promising but indefinite, the product and marketing programme can be tested farther in controlled or standard test markets.17
Business marketers use different methods for test marketing their new products, such as: product-use tests; trade shows; distributor/dealer display rooms; and standard or controlled test markets.
PRODUCT-USE TESTS. Here the business marketer selects a small group of potential customers who agree to use the new product for a limited time. The manufacturer's technical people watch how these customers use the product. From this test the manufacturer learns about customer training and servicing requirements. After the test, the marketer asks the customer about purchase intent and other reactions. For some products, product-use tests may involve both the business customer and final or end-user.
TRADE SHOWS. These shows draw a large number of buyers who view new products in a few concentrated days. The manufacturer sees how buyers react to various product features and terms, and can assess buyer interest and purchase intentions.
DISTRIBUTOR AND DEALER DISPLAY ROOMS. Here the new industrial product may stand next to other company products and possibly competitors' products. This method yields preference and pricing information in the normal selling atmosphere of the product.
STANDARD OK CONTROLLED TEST MARKETS. These are used to measure the potential of new industrial products. The business marketer produces a limited supply of the product and gives it to the sales force to sell in a limited number of geographical areas. The company gives the product full advertising, sales promotion and other marketing support. Such test markets let the company test the product and its marketing programme in real market situations.
torn me rcialization Introducing a new -product into ihc market.
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