1. Market testing & launch management
Innovation Management 2012
Stefan Wuyts

2. Agenda Market testing and test marketing Methods of market testing
Launch management

3. 1. Market testing
Trade-off between (a) cost/time savings and (b) accuracy.
It is a third major form of testing:
Concept testing (“lack of need”)
Product use testing (“product does not meet need”)
Market testing (“product is marketed poorly”)
Solid forecasts
Diagnostic information
Market testing is not test marketing!

4. Decision whether to market test
Increased competition puts greater pressure on managers to accelerate product cycle time.
Market testing is costly.
Is there a need for forecast and diagnostic information?

5. Decision Matrix when to market test
High
Low
Scope of Learning
and Accuracy
Cost and Time
Savings
High
Low
Stages of the product development cycle

6. Market Testing: Where We Are Today?
Scanner systems allow for immediate collection of product sales data.
Mathematical sales forecasting models are readily available that can run on a relatively limited amount of data.
Testing marketing components of the product at early stages (ads, selling visuals, service contracts, package designs, etc.) rather than testing the whole product at the end.

7. Market Testing: avoid surprises
Campbell Souper Combo (combination of frozen soup and sandwich) for microwaves.
Forecast by the product team: $68 million
Forecast from marketing research: $45 million & poor repeat sales.
Decision: nation-wide launch!
Observation: one-off purchases, out of curiosity, but product was experienced less rather than more convenient.
Result: product was pulled after nine months
Lesson: Market tests must have teeth!

8. Market Testing: avoid surprises
Surprise may also come from too much demand
Nabisco, immediate launch of Ritz Bitz to national market, demand much higher than expected

9. 2. Methods of Market Testing, and Where Used
18-9

10. Methods of Market Testing: overview
Speculative sale
Full pitch of product, “would you buy it”?
Regular salespeople, real customers
Simulated test market
False buying situation, observe
Try to find out trial and repeat (ATAR) to predict sales
What-if analyses
Conducted by IRI, Nielsen
Informal selling
Trained salespeople, with product and sales materials, make calls
Real sales
Direct marketing
List the new product in some catalogs of direct marketers; more secrecy
Mini marketing*
Limited number of outlets, store flyers, shelf displays
Test marketing**
Representative piece of total market, regular channels, local media
Goal: now used to finetune plans
Rollout***
Limited area (e.g. 25% of the market), monitor sales of product there.
By geography, application, influence, channel

11. Minimarkets* and Scanner Testing: IRI’s BehaviorScan and InfoScan
Two panels of families in a number of small cities
Cable TV interrupt privileges
Full record of what other media (such as magazines) go into each household
Family-by-family purchasing
Full record of 95 percent of all store sales of tested items from the check-out scanners
Immediate stocking/distribution in almost every store is assured by the research firm.
Result: IRI knows almost every stimulus that hits each individual family, and it knows almost every change that takes place in each family's purchase habits.

12. Test markets**
Starbucks did traditional test markets for Via instant coffee, as the risks were judged to be high and a failure could hurt overall Starbucks brand equity.
Was Via perceived as high-quality and worthy of the Starbucks brand?
Were Starbucks taste features delivered by an instant?
Were Starbucks customers skeptical of any instant?
Did Starbucks customers like the individual packet format?

13. Pepsi-Kona: mix of Kona coffee and cola
Carbonated beverage with taste of coffee
Test-marketed in Philadelphia, went poorly
Consumers didn’t like combination of flavors

14. Pros and Cons of Test Marketing
Advantages:
Best sales forecasts
Risk Reduction
monetary risk
channel relationships
sales force morale
Strategic Improvement
marketing mix
production facilities
Disadvantages:
Cost ($1 mill+)
Time (9-12 months+)
hurt competitive advantage
competitor may monitor test market
competitor may go national
Competitor can disrupt test market
Results may not be projectable

15. The Rollout*** Starting areas are not necessarily representative
The company may be able to get the ball rolling more easily there
The company may deliberately choose a hard area to sell in, to learn the pitfalls and what really drives success.
Decision point: when to switch to the full launch.

16. Risks of Rollout
May need to invest in full-scale production facility early.
Competitors may move fast enough to go national while the rollout is still underway.
Problems getting into the distribution channel.
Lacks national publicity that a full-scale launch may generate.

17. International rollout
Sales product class C1 C3 C2
Time

18. Point of take-off (Tellis, Stremersch and Yin 2003)
Takeoff is the point of transition between the introduction and growth stages of a new product
In Europe on average 6 years until takeoff…
… but much variation!
Kitchen appliances, washing machines etc.: on average 8 years
Entertainment (CD, color TV): on average 2 years
Scandinavian countries: on average 4 years
Southern countries: on average 7.5 years

19. The point of takeoff is a function of a number of country-specific factors:
GNP (+)
Need for achievement (+)
Uncertainty avoidance (-)
Media intensity (+)
Level of education (+)
This tells us something about preferred sequence of international rollout

20. Probable Future for Market Testing Methods
Test marketing (“dinosaur”)
Pseudo sale (incomplete)
Minimarket (flexibility & variety)
Rollout (small, fast, flexible)

21. 3. Launch Management Concept Showing Remedial Action
% aware who
have tried
As of now
Goal
With action
Without action
Plan
Actual
Launch
Now
6 months
Time

22. The Launch Management System
Spot potential problems.
Select those to control.
Consider expected impact/damage.
Develop contingency plans for the management of problems.
Design the tracking system.
Select variables.
Devise measuring system.
Select trigger points.
Adage: in driving a car, it is the potholes you don’t know about (or forget about) that cause you damage.

23. Example: A-T-A-R Hierarchy: Where Does the Problem Lie?
Aware
Unaware
Tried
Not
Reused
Not R.
Does the problem lie in awareness, trial, or repeat?