Module 6: Understanding concept development and testing

Introduction:

In the previous two chapters (chapter 4&5), the focus of discussion related to how companies
generate and screen ideas for further development. At the next stage, which this chapter
examines, the screened ideas are developed into more fully specified concepts, which are
evaluated for their appeal to the potential market segments whom they are intended.

Module Objectives:

▪ Understand the difference between screening ideas and testing concepts;

▪ Describe the process of concept testing for new products;
▪ Understand concept testing techniques that may be employed by companies;
▪ Appreciate the data collection methods for concept testing; and
▪ Design a concept test for a particular new product.

Concept development and testing involves designing and presenting representations of the
proposed new product to a sample of its intended customers. These stages are by no means
discrete, and much of what happens during concept development is conditioned by nature of
the idea generation and screening which has already taken place. The objective of concept
development and testing is to estimate market reaction to a product idea before committing
substantial funds to its physical development. In other words, this stage may be viewed as an
extension of idea generation and screening, in that those ideas screened to be of potential
value developed and screened further in order to determine which idea specifications have
greatest appeal to potential customers, in the light of competitive offerings.

The dual tasks of concept development and testing are intimately related. The first articulations
of the new product concept will be derived from the activities carried out during idea
generation and screening, but these articulations can be reworked in the light of customer
reaction, and retested, until an acceptable concept is modeled, which can be progressed to
physical development. This ‘in-stage’ iteration is shown below:

Figure 6.1 The iterations in concept development and testing.

The concept testing cycle highlighted is repeated until the company identifies the concept
which exhibits the acceptable level of appeal, both internally and externally.

The number of iterative cycles at this stage depends on the way in which the original ideas were
generated and screened. For example, a very large number of ideas screened may still not have
been subjected to any formal evaluation by the market, in which case there is greater scope for
an initial concept formulation to be unsatisfactory as a number of versions for the target
market may have to be drawn up. These initial formulations will have to be modified and
retested. If, on the other hand, ideas generated and screened on the basis of market research
techniques such as perceptual maps, the most appealing dimensions might well be present in
the first concept formulations and fewer iterations are consequently required.

THE PURPOSES OF CONCEPT TESTING

As explained above, concept testing has an overriding purpose: to estimate customer reaction
to an idea developing the physical product. However, at this stage in the development cycle, a
number of supporting objectives are implied:

• To profile the market

✓ Current buying pattern
✓ Existing segments
✓ Customers’ view of the products available

• To assess likely purchase intention and position the product

✓ Trial and repeat purchase
✓ Barriers to changing brands

• To make improvement to the new product concept

✓ Overall product concept
✓ Features of the product concept

Each of this different sets of objectives implies that different concept tests are appropriate,
although the various ways in which data are collected may often permit several ‘tests’ or
‘measure’ to be made at once. The sets of objectives are linked, largely through the concept of
customer needs and preferences. These links are shown below:

Figure 6.2 The purposes of concept testing

Figure 6.2 shows that while the three sets of objectives are themselves interrelated and
interdependent, they are commonly informed by a thorough understanding of customer needs
and preferences. Therefore, these necessarily form the core of all forms of concept testing.
However, eliciting information regarding needs is always straightforward, particularly if
developers relate them to a new technology. To sum up, needs have a varying level of visibility.
These are:

1. Basic needs – those which customers will assume the product satisfies. For example, a
consumer assumes that a vacuum cleaner will clean carpets.

2. Articulated needs – those which a consumer can express readily. These are often met by
at least one current solution, or can be easily imagined as being met. For example, a
consumer might imagine a vacuum cleaner that shampoos a carpet.
 3. Exciting needs – those that will delight and surprise a customer. These are usually not
met by current products available and customers might find them difficult to articulate.
For example, some customers might be excited by a vacuum cleaner that distributed
anti-stain solution and fiber conditioner.

Any new project concept must tap into all levels. The fulfilment of basic needs is, of course, a
prerequisite; the satisfaction of articulated needs characterizes the basis upon which the
intended new product might compete with others in the category; whilst addressing exciting
needs provides platform upon which to differentiate the new product and attract new
customers. It should be remembered, however, that “the act of consumption changes the
consumer”, indicates the dynamism of the experience of needs. Once satisfied, needs migrate
towards the basic status.

In other words, a product concept which at the time of launch satisfied both basic and
articulated needs will soon slip in status, to the part where it satisfies only basic needs.

THE RELATIONSHIP BETWEEN NEEDS AND PRODUCTS

A product is the focus of an exchange process wherein customers exchange cash for
satisfaction. In order to explicate the levels on which this satisfaction may or may not be
delivered, marketing literature uses a multi-level view of product comprising:

• Core benefit: the fundamental service or benefit being purchased

• Generic benefit: the material properties which deliver the core benefit
• Augmented product: the ‘package’ which includes additional services and benefits that
distinguish the company’s offering from competitors
• Potential product: the augmentations and transformations that the product might
undergo in the future

Viewed this way, a complete product concept would have to cover at least the first four of
these levels. Even if each level were not to be individually subjected to concept tests, the
internal picture is not complete without an indication of how the new product concept
performs at this level.

A product is the outcome of a ‘continuous tri-partite signification process’ between buyers,

suppliers and the object. This outcome – the pluri-signified product – is shown in Figure 6. 3
The significance of this view is that it highlights the need for product developers’ top focus not
only on needs and expectations but also on their underlying determination and on the
relationship between the customer, the object and the supplier. This, it is argued, is of benefit
to those engaged in new product development, as it introduces elements into concept testing
which are usually ignored (company reputation, whether or not consumers usually buy the
company’s products) and over which the company has considerable control.

THE PROCESS OF CONCEPT TESTING

Concept testing is the attempt to predict the success of a new product idea before putting it on
the market. It usually involves getting people’s reactions to a statement describing the basic
idea of the product. It is usually conducted as a pass/fail, go/no go test and as such is influenced
by all that influences perception, such as:

• Information given about the new product concept. The degree to which the concept is
explained and linked to other product levels (for example the augmented product) will
affect customer perceptions.
• Timing of the evaluation. The more time given to a customer to evaluate a concept
influences the response. If only a short time is given, only first impressions will be
forwarded.
• Context for the concept. The context for product evaluation may be defined in many
ways, vis-a-vis competition, place of consumption or use of the product, with reference
to certain market segments and positioning.
• The nature of the product concept itself. This relates to the point where a product
concept fits on the continuum between ‘ emotive’ and ‘functional’. In general, the more
emotive a product concept, the more information is required to explain the concept. Of
course, as has already been stated, highly emotive products such as perfume may not
concept-test well or easily.

These overriding considerations influence the choices outlined below in dealing with the
process of concept testing which is generally made up of three phases: 1. Definition of specific
objectives; 2. Types of concept presentation; and 3. Method for gathering data.

Defining Objectives

The overall purpose of a concept test is likely to vary from one concept to another. Broad
purposes of concept testing were introduced: to assess likely purchase intentions, to make
improvements to the new product concept, and to profile the market. The relative importance
of each will influence the type of concept test carried. Each is examined briefly below.

A. Assessment of purchase intent (PI)

It might be argued that this is the primary purpose of concept testing, so that those
concepts with poor potential may be weeded out. All the techniques used are in some way
related to key concepts in buyer behavior generally and those associated with the adoption of
innovation. The most common way to assess purchase intention is to provide a description of
the product and ask respondents participating in the test to check the appropriate box, saying
whether they:

▪ Definitely would buy

▪ Probably would buy
▪ Might or might not buy
▪ Probably would not buy
▪ Definitely would not buy

It is usual to consider the top two boxes’ responses in deciding the concept’s potential.
B. Improving the product concept

Inherent to concept testing is concept development. Since respondents are asked to

evaluate a concept, there is ample opportunity to adjust the details of the concept in order to
pinpoint which concept has greatest appeal

This development work may be carried out with respect to the overall product, in which
case an indication of consumers’ perceptions of a number of concept-specific may be
evaluated:

▪ The concept’s uniqueness vis-a-vis other product available

▪ The concept’s believability
▪ The ability of concepts to solve a customer’s problem
▪ Value for money

These questions may be termed diagnostic. Diagnostic questions are those which shed
light on reasons behind the intention-to-purchase questions, implying that diagnostic
questioning tends to accompany intention-to-purchase questions.

C. Market profiling

The third major purpose (objective) of concept testing is to assess the characteristics of
likely buyers and non-buyers. At the most basic level, this will involve the collection of
demographic information, but may extend to include information such as typical buying
criteria, psychographic profiles, product usage patterns and buying processes used. This kind of
information helps to interpret analyses of the intention-to-purchase date, thereby leading to
refinement of the concept under development and preliminary for targeting, positioning,
promoting and launching the product.

It is important that the balance of these three possible objectives of concept testing is
specified at the outset. Depending on these objectives – what the tests are to achieve – their
nature will change. Diagnostic objectives may require both qualitative and quantitative tests to
be carried out. The actual types of questions whether focused on one concept or on more than
one, whether the concept statements given to consumers include ‘positioning’ signal,
essentially flow from the objectives.

TYPES OF CONCEPT PRESENTATION

Once the basic research objectives have been set, the next step is to define what and how to
present to customers. There are commonly seven ways to present a concept to the market for
evaluation:

1. Verbal presentation. Is the most basic type of presentation. Verbal presentation

generally gives an incomplete picture of the product concept (which may result in
unreliable findings).
2. Monochrome line drawing can be used on its own (see picture below) or with
accompanying text

3. A color line drawing can be used to portray more of the feel of the product.
 4. A photograph of the mock-up is normally used at the concept development phase. Also,
where a ‘new’ product is introduced from a foreign market, photographs (or even
product packs) may be available to evaluate the concept.
5. A storyboard is frequently used to evaluate the advertising concepts. It allows a
presentation of the product in the context for which it is designed
6. A mock-up of the pack, shape or general form can be used – but at the concept stage
this is not a ‘working’ mock-up. This presentation gives a customer a better feel for the
product he or she is being asked to evaluate.
7. A computer simulation – or graphic – is used to represent the product. This has the
advantage of being able to be rotated, enlarged, with the overall designs and features
highlighted ad the evaluator wishes.

RESEARCH METHODS FOR CONCEPT TESTING

The research methods used for concept testing are numerous. Among the central issues are
data collection methods, location of the research and question format.

DATA COLLECTION METHODS

The methods collecting the data may be qualitative or quantitative. Qualitative procedures such
as in-depth interviewing of either individuals or groups of consumers are generally recognized
to be of benefit, particularly for generating and refining concepts statements or indeed the
concept themselves. As with qualitative research in general, its intensive focus allows
respondents the time and freedom to express likes, needs, preferences and opinions, without
forcing a reply, as in quantitative methods. This, in turn yield high levels of validity and delivers
greater understanding to the developers in the dimension along which the customers will judge
their products. However, qualitative techniques requires skilled fieldworkers and researchers
(as do quantitative techniques) to avoid pitfalls of leading customers or misinterpreting their
meaning. In addition, their intensiveness usually eclipses the possibility of carrying out research
with large samples, which is problematic where the purpose of the tests is to generate
representative estimations of market preferences and possible market shares.

Quantitative techniques, on the other hand, which cover survey techniques such as structured
‘personal’ interviewing, mail and telephone surveys, are less intensive and can therefore be
conducted on a much larger, random scale, with the resultant data being more easily
generalizable. In reality, however, because concept testing is about assessing attitudes,
perceptions, intentions, and so forth, it is valuable for researchers to be able to explain issues
and probe customers, so personal, structured interviewing is the most commonly used data
collection method. Mail survey in particular have a number of drawbacks: it is difficult to obtain
full answers to any open-ended question regarding product dimensions; response rates to mail
surveys are generally low, casting doubt on the representativeness of the responses obtained;
respondents usually have no opportunity to ask questions about the concept; and finally, the
problem of the effects of question wording and question order on the responses given cannot
be easily avoided. Telephone interviews suffer from limited opportunities to use any graphic
representation, unless combined with mail contact, and the interview usually has to be kept
rather short.

LOCATION OF TESTS

Given that the most data collection method for concept testing tends to be personal, structured
interview, decisions regarding the location of such tests have to be made. The choice is usually
made between carrying out the interviews at the respondent’s home, or in a neutral location
such as shopping mall, a public thoroughfare, or a hotel seminar room.

Industrial companies may also execute concept tests at trade fairs or exhibitions, despite the
drawback that competitors are present. Public places, such as the street, shopping malls or
hotel seminar rooms (where people from the street may be invited), are usually varied to cover
different times of the day as well as different days of the week, in order to generate samples
that are as representative as possible.

QUESTION FORMAT

In addition to decisions regarding the type of data collection strategy to be used, the types of
question asked must be decided upon, in terms of their content and form. As discussed above,
their precise content is in large measure dependent upon the objective of the concept test.
Therefore, where the tests aim to identify the proportion of likely users, the questions will be
different from where tests are focusing on diagnostic issues. The types of question that relate
to different purposes will be returned to shortly. There is, however, an overriding choice
governing the type of questions. Specifically, developers must choose between monadic and
comparison questions

Monadic or comparison questions

Monadic questions are those ask respondents about ‘one’ concept (hence monadic). If the
concept testing phase as a whole is focused on several new concepts, then each one would be
evaluated by one sample only, with comparisons being made after the data have been
collected. No one respondent would be asked more than one concept. Figure 6.4 shows how
three concepts might be tested during a monadic approach.

The three product concepts, A, B, C, are assessed by three groups of respondents. These three
groups, or samples, are matched. This means they are similar samples in forms of demographic
characteristics, or indeed of characteristics which might be used to segment the market for the
product, once launched. The groups of respondents are asked to rate the (one) product they
are testing is terms of overall likes and dislikes, and in terms of likes and dislikes of specific
attributes. These questions would satisfy the ‘diagnostic’ aims. For the purchase intention aims,
each sample would be asked how likely they would be to purchase the product. The results
from each group are then compared and inferences are drawn regarding which product
concept has achieved highest acceptance.

The argument in favor of monadic testing posits that the test captures the reality of the
purchase situation, since, faced with a choice or products, consumers compare products in their
own minds. However, the disadvantage is that it is difficult to assess whether the differences in
scores for products are due to the fact that different people are testing them rather that due to
the consensus view of that one product concept is better or worse than another. Using the
same people to test different product concepts resolves this problem, and is called comparison
or comparative testing.

In comparison testing, the same group of respondents is asked about two or more concepts.
Several groups of respondents may be used in order to check the reliability of the results.
Figure 6.5 depicts this approach.
One advantage of comparative testing is that since the same group of respondents is being
used to test different new product concepts, the differences in average scores for each can be
more reliably allocated to real perceived differences, rather than differences among the groups
of assessors. In addition, some people favor comparative testing as they believe it reflects more
accurately the purchase situation where a potential buyer assesses a new concept in relation to
ones he or she already knows.

SPECIFIC TECHNIQUES FOR CONCEPT DEVELOPMENT AND TESTING

This chapter has concentrated thus far on describing the purposes and decisions of concept
testing in general. Techniques described in ‘idea generation’ such as perceptual maps may have
their uses also in designing and refining new product concepts.

Below we briefly discuss three more specific techniques associated with designing new
products: CONJOINT ANALYSIS, HYBRID CONJOINT ANALYSIS AND THE HOUSE OF QUALITY.

CONJOINT ANALYSIS

Product management is all about trade-offs. Whether the objective is increased market share,
profit margin or revenue, every product manager makes trade-offs—quality vs. cost, time to
market vs. breadth of features, richness of the offering vs. ease of use, etc.

So, how do you know what the market wants? What market segments exist? What those
segments prefer? What will they pay? In short, how do you know what trade-offs to make? The
answer is to get the market to make the trade-offs for you. Not the entire market, of course,
just a representative sample of the market.

By using conjoint analysis, you, as a product manager, can do just that: understand the trade-
offs you should make by understanding the trade-offs your market will make. Then, apply your
increased market insight to your revenue, profit or share objective.

What exactly is conjoint analysis?

Conjoint analysis is a set of market research techniques that measures the value the market
places on each feature of your product and predicts the value of any combination of features.
Conjoint analysis is, at its essence, all about features and trade-offs. With conjoint analysis, you:

1. Ask questions that force respondents to make trade-offs among features

2. Determine the value they place on each feature based on the trade-offs they make
3. Simulate how the market reacts to various feature trade-offs you are considering
To demonstrate conjoint analysis in action, let’s consider cell phone plans. These plans have
various feature types, which in the language of conjoint analysis are called attributes. Let’s
focus on Brand, Price, Minutes, Rollover Options, and Call Options. In reality, plans can be more
complicated and conjoint analysis can keep up with the complexities, but let’s keep the
example simple. Each of the attributes listed above has different levels. The levels of the Brand
attribute might be AT&T, T-Mobile, Verizon, etc., but here we will refer to possible Brands as
Brand A, Brand B, etc.

Attributes Levels
Brand Brand A, Brand B, Brand C, Brand D
Price $60/month, $75/month, $100/month
Minutes 800; 1,000; 1,400; 2,000
Rollover Options No rollover of unused minutes
Unused minutes rollover for 1 month
Unused minutes rollover for 1 year
Call Options No free calling based on contacts
Free calling to top 5 contacts
Free calling to top 10 contacts

Attributes must be something you can categorize, but they don’t have to be numeric. Note that
the attributes include brand, price, and various product features. Through conjoint analysis, you
gain insights into the value of your brand and the value of product features, and determine
price sensitivity.

Survey the market

Conjoint analysis survey questions could take a variety of forms, depending on your study
objective, but the most common type of question would be:
Which of the following cell phone plans do you prefer?

Brand A Brand B Brand C

1,400 minutes 1,000 minutes 800 minutes
Unused minutes rollover for 1 No rollover of unused Unused minutes rollover for 1
month minutes year
No free calling based on contacts Free calling to top 5 Free calling to top 10 contacts
contacts
Costs $100/month Costs $75/month Costs $60/month

Derive values for each of the levels

From responses to these questions, conjoint analysis uncovers the underlying value for each
level, depending on how often a level was included in the product selected. The relative value
of the levels is what is relevant, in other words, how the value of one level compares to the
value of another.

Understand the trade-offs you should make by understanding the trade-offs your market will
make.

For example, the values for the levels of the Call Options attribute and the Rollover
Options attribute for one respondent might be:
Call Options Value Rollover Options Value
Free calling to top 10 contacts 50 Unused minutes rollover for 1 year 100
Free calling to top 5 contacts 20 Unused minutes rollover for 1 month 30
No free calling based on contacts 0 No rollover of unused minutes 0
You can see in this example, given the levels tested (which is an important caveat), the Rollover
Options attribute (with values ranging from 0 to 100) was more important to the respondent
than the Call Options attribute (with values ranging from 0 to 50). These values can be
calculated for individuals as well as for the overall market, which means you can use conjoint
analysis to segment your market based on respondent characteristics, needs and preferences.
Each of the level values is called a part-worth, because they represent the worth of any given
part of the product.

HYBRID CONJOINT ANALYSIS

The hybrid procedure is intended to provide market share estimates for new and existing
products, examining the impact of changes in product attributes, price and competitive
reaction and taking into account ‘subjective’ factors such as manufacturer’s reputation,
reliability in delivery, and service levels given to customers. In addition, it is designed to
anticipate the extent of brand substitution, also called cannibalization, since overall company
revenues will not be enhanced if a new product’s sales merely take the place of those provided
by existing products. In order to deliver these insights, procedure must not only specify the new
product concept and select the experimental design, it must also define the set of relevant
competing products. This involves, in the case of an entirely new product, finding which
alternatives currently satisfy the needs the new product aims to satisfy.

THE HOUSE OF QUALITY (Quality Function Deployment, QFD)

House of Quality is a diagram, resembling a house, used for defining the relationship between
customer desires and the firm/product capabilities. It is a part of the Quality Function
Deployment (QFD) and it utilizes a planning matrix to relate what the customer wants to how a
firm (that produces the products) is going to meet those wants. It looks like a House with a
"correlation matrix" as its roof, customer wants versus product features as the main part,
competitor evaluation as the porch etc. It is based on "the belief that products should be
designed to reflect customers' desires and tastes". It also is reported to increase cross
functional integration within organizations using it, especially between marketing, engineering
and manufacturing.

The House of Quality is the first matrix in the QFD process; it converts customer expectations
into "critical to quality" features, compares those features with existing performance, and
identifies changes needed to bring performance into alignment with customer expectations.
The House of Quality comprises six components:
 1. customer requirements, obtained from actual customer feedback;
2. technical requirements of the product or service, defined in specific and measurable
ways;
3. a "planning matrix," usually derived from market research, that includes measuring the
relationship between customer preferences and both the company's performance and
competitors' performance;
4. an "interrelationship matrix," which measures perceived relationships between
customer requirements and technical requirements;
5. a "technical correlation matrix," which identifies correlations or conflicts in technical
requirements and highlights opportunities for improvement (also known as the "roof" of
the House of Quality); and
6. a matrix illustrating and measuring technical priorities, benchmarks, and targets or
objectives; the results in this final matrix should fulfill the customer requirements
outlined in the first component.

Summary

This chapter has introduced a number of issues concerned with the development and testing of
new product concepts. It began with an explanation of where the stage ‘fits’ in the NPD
process, and where overlaps and reiterations exist in relation to previous stages. Next, the
various purposes of concept testing were explained, with emphasis on the centrality of
customer needs and preferences to these purposes. The nature of a new product concept was
defined and the process and decisions in designing a concept test were described. Finally, three
major specific techniques associated with concept development and testing were introduced.

After the information is collected and analyzed, a major decision whether to continue with the
development must be made, before making a commitment to full physical development of the
product. The physical development of the product is costly business, and, as mentioned
previously, the more ‘up-front homework’ that can be done the more efficient and effective the
entire development will be.