You are on page 1of 10

ROLE OF TEST MARKETING IN

NEW PRODUCT DEVELOPMENT
By Prateek Singla

November 5, 2014
UBS Chandigarh

New Product Development refers to original products. or a license to produce someone else‟s product. product modifications. New Product development process involves following phases- Idea Generation Idea Screening Marketing Startegy Development Concept Development and Testing Business Analysis Product Development Commercialization Test Marketing . product improvements. a patent. One is through acquisition and other is through firms‟ own new product development efforts. Acquisition refers to the buying of a whole company. and new brands developed from the firm‟s own research and development.A firm can obtain new products in two different ways.

By offering temporary use of the service for a month and through group interviews etc. Mohammed-Salleh. done in a limited but carefully selected part of the market place. such as costs and competitor risks. Aliah. whose aim is to predict the sales or profit consequences either in absolute or in relative terms. Mohammed-Salleh et al (1993) found that within the New Product Development process test marketing was the least used stage by organisations with only 16-18 percent using the stage at all. Klompmaker (1976) cite that the main purpose of test marketing is to find out the potential of the whole marketing mix which includes product. Wolf. Companies such as Nike and Addidas will offer their products to players to test before release in order to find out the quality of the product. with one potential risk being competitors being able to use and view your product before launch. Clancy. It is essentially the use of the . Definition of Test Marketing “Test Marketing is a controlled experiment. and Chris Easingwood (1993). size and the sort of information they wish to gather.Test marketing comes just before the final step of commercialization within the New Product Development process. of one or more proposed marketing actions. price. allowing for changes to be made to improve the strategy before commercialization takes place. M. place and promotion. it covers all aspects of the marketing mix. Krieg. and thus bringing a product of their own to market before you. a questionnaire to find out the quality of the service and reactions to marketing strategy would need to be implemented. with there being risk in that limited users may not want to use the sight so feedback might not be able to be obtained. By doing this it allows businesses to find out strengths and flaws. Key elements that organisations must consider when performing test marketing is the user. it‟s vital that through a sample group testing. K. and then correct them before release. However there are cons associated with test marketing. This leads the question how vital is test marketing within the process of NPD? Not carrying out test marketing can have massive effects upon the success of a company‟s marketing mix with risks within the product and in addition the marketing strategy as well. Test marketing is “to test the effectiveness of the various components of the marketing mix”. P. As the service requires mutual users to trade in sporting products it is crucial to encourage people to try the service.(2006) discuss the potential issues faced with test marketing.

Second it may also be used as a predictive tool. it is not advisable to undertake an elaborate and time consuming test marketing as this may be unnecessary. in the field of business and marketing. It is used as a device to gain experience to identify the problems likely to arise in marketing operations and to develop a sound marketing programme eventually.market place as a laboratory and of a direct sales measurement which differentiates this test from other types of market research. It is clear that test marketing is essentially an exercise in experimentation. In such cases test marketing is used to improve the mechanics of the marketing operation so that the management may know in advance the problems that are likely to arise and hence improve its marketing operations. The criteria used to judge the acceptability of a test market region or group includes: 1. and 2. Test market. This is particularly true in respect of new products or brands where the management may be understandably apprehensive. USES OF TEST MARKETING There are two uses of test marketing. stocking and transportation which if not handled properly may not prove to be costly mistakes. When a company intends to expand its business operations. Here the role of test marketing is limited. It also brings out that the predictability of sales or profit is the objective of test marketing. breakage. where the marketplace is a laboratory. Relative isolation from densely populated media markets so that advertising to the test audience can be efficient and economical. storage. A population that is demographically similar to the proposed target market. TEST MARKETING AS A MANAGERIAL CONTROL TOOL Test marketing frequently serves as a pilot operation for large scale marketing activity. These two uses are discussed in some details here. TEST MARKETING AS A PREDICTIVE RESEARCH TOOL Test marketing is often used as a predictive research tool in two different situations. it is not used for purposes of prediction of sales or profit. There are for example many physical problems such as handling of the product. These are . First it may be used as a tool for management control. is a geographic region or demographic group used to gauge the viability of a product or service in the mass market prior to a wide scale roll-out. some element of risk is involved.

Buying Income Method: Here the test areas sales of the new product/brand are expanded by the ratio of the national income to the test area‟s income. The evaluation of alternative marketing variables. When a test market is conducted for a new product or new brand the management would like to know how this new product or new brand will do in terms of sales and profits at the national level. When a company is seriously considering a new packaging for its product. The introduction of a new product/brand. More often one finds that test marketing is used for a new brand of an existing product category. Thus Estimate national sales = Total income of the country * Test area sales / Test Area income Sales Ratio Method: here the test area sales of the new product/brand are expanded by the ratio of national sales of other product to test area sales of this other product. Test marketing should be used only when the change is substantial otherwise it will be only a wasteful expenditure. Thus Estimate of national sales = National sales of other product * test area sales of test product / Test area sales of this other product This other product or brand should be related to the test product in some way. The share of the market method: Here the ratio of test area sales of new product to test area sales of the whole product category is to be multiplied by the national sales of this whole product category. In this regard three approaches as suggested by gold can be used. TEST MARKETING FOR NEW PRODUCTS /BRANDS When a new product or brand is to be introduced in the market place. test marketing can be used to predict the likely performance of the new product. 2. However a new brand may be substantially different from the others in the products category or it may be just another brand and may not be very different from the others. This will be true particularly where the new product does not have any direct substitutes. In the former case. some form of blind product testing is desirable to find out whether the new brand is just another addition to the product category test marketing may not be desirable. When heavy investment is required for the new brand. Management should have sufficient evidence to think that the relationship in regard to the other product would hold well with respect to the test product. In such a case the management neither has any information of its own nor any experience of the others. In case of an existing brand. Test marketing is also used while recycling an existing brand. Thus . In such a situation.1. the management is apprehensive about its performance. its repositioning or some improvement in an existing brand it may use test marketing before introducing such a change. it may be advisable to run a test market to ensure its market acceptability first.

what is planned to occur in a national launch.promotion and distribution as well as `product' . Replicability . however. each testing different marketing mixes. several `matched' test markets (usually small ones) may be used. Test market results therefore have to be treated with reservations. typically in one area. all test markets provide additional information in advance of a launch and may ensure that launch is successful: it is reported that. . and the smaller ones may introduce gross distortions. is normally the main justification for the expense of test markets.on a smaller scale. possibly the version of the product itself. Clearly. In this case. The `area' may be any one of the following:  Television area  Test town  Residential neighborhood  Test site A number of decisions have to be taken about any test market:  Which test market?  What is to be tested?  How long a test?  What success criteria? The simple go or no-go decision. the distribution channels and the price.Even the largest test market is not totally representative of the national market. The technique replicates. together with the related reduction of risk. so that they can be extrapolated to projected national results. all test markets do suffer from a number of disadvantages: 1. At the same time. and the results are very carefully monitored. However. half the products entering test markets do not justify a subsequent national launch.Estimate of national sales = test area sales of new brand * national sales of this whole product category The test market ideally aims to duplicate 'everything' . the promotional message and media spend. even at such a late stage. such test markets can be used to test specific elements of a new product's marketing mix. in exactly the same way as other market research.

categories also dominated the `most successful' new product list (accounting for 60 per cent). Effectiveness' . The greatest risk here is not having the `product' available at the right time. Therefore.but these two. . by changing their promotional activities (usually by massively increasing them) to the extent that your results are meaningless. In a survey of 700 consumer and industrial companies. Risk It has to be recognized that the development and launch of almost any new product or service carry a considerable element of risk. They may also interfere with your test. 'Competitor warning'. and the time to react. all of them take time. and not worth the delays involved.2. are designed to reduce risk. Indeed. Risk versus Time Most of the stages of testing. although it had to be noted that only 10 per cent of these were totally new products and only 20 per cent new product lines . which once more confers an advantage to the larger organizations. There is safety in numbers. However. Cost'. 1. the reduction in risk may be minimal. time is a luxury which is not available. it has to be questioned whether the risk involved in most major launches is justifiable. New product development has therefore to be something of a numbers game. They may even be able to go national with their own product before your own test is complete.In many cases the major part of the investment has already been made (in development and in plant. such as fashion businesses for example.Although the main objective of test markets is to reduce the amount of investment put at risk. they may still involve significant costs. and ahead of the competitors. which are the key parts of the new `product' process. All test markets give competitors advance warning of your intentions. and typically do not make use of them at all. Booz Allen Hamilton reported an average new product success rate (after launch) of 65 per cent. A large number of ideas have to be created and developed for even one to emerge. These markets consequently obtain less benefit from the more sophisticated new product processes. in view of the on-going dominance of the existing brands. In some markets. to ensure that the product or service will be a success. for example) before the `product' is ready to be test marketed. highest risk.

that of becoming the market leader. be a conscious decision. and the next day the new product. Japanese manufacturers will easily out-innovate and outperform them.and hence most important . in any case. and it may reveal that both can run together. Such an introduction will be complicated by the fact that. On the other hand. and even to halving it in the very mature car industry. even if only because this is forced upon them by their distribution chains. the first brand is likely to gain a major. American companies are losing leadership of technology and innovation . The risk levels may be much reduced. quite simply. share of that market in the long term. Some firms may opt for a straight cut-over. Pioneering is often the province of the smaller organizations. companies reduce their product development and introduction cycles from 36-48 months to 12-18 months. is that of replacement of one product by a new one. Product Replacement One form of `new product launch' which is little discussed. since there is an existing user base to underwrite sales (as long as the new product doesn't alienate them ..as `New Coca-Cola' did in the US and `New Persil' did in the UK).'When' to enter a market with a new product should. Accordingly. there will be two forms of the product in the pipeline.Being first into a market carries considerable risks. .  Latecomer .of all. On the other hand. eventually. To quote George Stalk of the Boston Consulting Group: "The effects of this time-based advantage are devastating. Most will favour parallel running for a period of time. replace the old. Japanese corporations led the way in reducing development time dramatically. one day the old product will be coming off the production line. To a certain extent this discussion has now long since been overtaken by events. at least for some time. This ensures that the new really does.. Unless U. but is probably the most prevalent . The only way for an organization even to survive may be to shorten development times below those of its competitors and for many others. on a small scale.S.This offers the reverse strategy. may also be missed. since their investment can be that much less than that of the majors. the choice to pioneer or to follow no longer exists in a number of industries. the related reward. The risk is minimized since the pioneer has already demonstrated the viability of the market. usually an `improved' version. leading and on-going. In relation to competitors there are two main alternatives:  Pioneer .

new products and tactics are tested among controlled panels of shoppers and stores. restrict the amount of test markets which can be conducted by companies. which is independent from any cost & time considerations. In controlled test markets. By combining information on each test consumer‟s purchases with consumer demographic and TV viewing information. The risk to reveal a new product design too early is another concern for companies in fast moving and highly competitive markets. Virtual Test Markets are computer simulations of consumers. new products or marketing and distribution strategies can be tested without the risk and time constraints discussed above. Alternative to Test Marketing As an alternative to extensive and costly standard test markets. companies can use controlled test markets or simulated test markets.Virtual Test Markets The considerable amounts of time and resources necessary to conduct test markets. such as SymphonyIRI‟s BehaviorScan. Using simulated test markets. BehaviorScan can provide store-by-store. researchers measure consumer responses to new products and marketing tactics in laboratory stores or simulated online shopping environments. To overcome these limitations a new type of test markets. Another advantage is the ability to test many different products in one Virtual Test Market as the computer simulation can always be reset to the original situation before the introduction of a new product. so called Virtual Test Markets. The technological basis for this kind of test market is a Multi-agent system as well as methods from Artificial Intelligence. companies and the market environment. was devised. In a Virtual Test Market. Both controlled test markets and simulated test markets reduce the costs of test marketing and speed up the process . weekby-week reports on the sales of tested products and the impact of in-store and in-home marketing efforts.

and Chris Easingwood.(2006).. Marketing Research. Wolf. Jay E. D'Amico. ICFAI text book of Marketing Management. Koshy. Tata McGraw Hill (4th Edition) Victor L. Tata McGraw-Hill http://hbr. "Time --the next source of competitive advantage". Mohammed-Salleh. Maryland:Lexington Books. Keller. P. Krieg. Allen and Hamilton Inc.” Market New Products Successfully Using Stimulated Test Market Technology”.3 (1976): 128-138." Harvard Business Review 54." International Journal of Bank Marketing 11..Bibliography Clancy. K. "Why European financial institutions do not test-market new consumer products. Jr. Marketing Research. New Products Management for the 1980s (1982) Stalk G.3 (1993): 23-27 Booz. Jha (13th edition‟) Klompmaker. Harvard Business Review (July-August 1988) GC Beri. Aliah.org/1988/07/time-the-next-source-of-competitive-advantage/ar/1 . Marketing Management By „Kotler. M. "Test Marketing in New Product Development.