1. 1 19-1 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. 2 19-2 CHAPTER NINETEEN MARKET TESTING: PSEUDO SALE METHODS

3. 3 19-3 What Is and Is Not Market Testing? Market testing is not concept testing, prototype testing, product use testing--or test marketing! Test marketing is one of many forms of market testing – including simulated test markets, informal sale, minimarket tests, and rollouts. Test marketing is also a much less common form now due to cost and time commitments and other perceived drawbacks.

4. 4 19-4 Where We Are Today in Market Testing 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. We are “building quality in,” testing the 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. Increased competition puts greater pressure on managers to accelerate product cycle time. Market testing is a team issue, not solely in the province of the market research department.

5. 5 19-5 Decision Matrix on When to Market Test Cost and Time Savings High Low Stages of the product development cycle High Low Scope of Learning and Accuracy Figure 19.1

6. 6 19-6 How Market Testing Relates to the Other Testing Steps Figure 19.2

7. 7 19-7 Two Key Values Obtained from Market Testing Solid (or at least better) forecasts of dollar and unit sales volume. Diagnostic information to allow for revising and refining different aspects of the launch. ----------------------------------------------------------- Also: Data to help persuade management, distributors, dealers and other influencers (such as the trade press)

8. 8 19-8 Deciding Whether to Market Test Any special twists on the launch? (limited time or budget, seasonality, need high volume quickly) What information is needed? (expected sales volumes, unknowns in manufacturing process, etc.) Costs? (direct and indirect costs of test, cost of launch, lost revenue that an immediate national launch would have brought) Nature of marketplace? (competitive retaliation, customer demand) Capability of testing methodologies? (do they fit the managerial situation at hand)

9. 9 19-9 Types of Information That May Be Lacking Manufacturing process: can we ramp-up from pilot production to full scale easily? Vendors and resellers: will they do as they have promised in supporting the launch? Servicing infrastructure: adequate? Customers: will they buy and use the product as expected? Cannibalization: what will be the extent?

10. 10 19-10 Methods of Market Testing and Where Used Figure 19.3

11. 11 19-11 Speculative Sale Often used in business-to-business and consumer durables, similar to concept and product use tests Give full pitch on product, answer questions, discuss pricing, and ask: –“If we make this product available as I have described it, would you buy it?” Often conducted by regular salespeople calling on real target customers

12. 12 19-12 Conditions for Speculative Sale Where industrial firms have very close downstream relationships with key buyers. Where new product work is technical, entrenched within a firm's expertise, and only little reaction is needed from the marketplace. Where the adventure has very little risk, and thus a costlier method is not defendable. Where the item is new (say, a new material or a completely new product type) and key diagnostics are needed. For example, what set of alternatives does the potential buyer see, or what possible applications come to mind first.

13. 13 19-13 Simulated Test Market (STM) Create a false buying situation and observe what the customer does (purchase intentions or actual choices) Follow-up with customer later after product usage to assess likely repeat sales Often used for consumer nondurables Does not measure all parts of ATAR model

14. 14 19-14 Simulated Test Market Procedure Mall intercept (typically) Self-administered questionnaire Advertising stimuli (usually) Mini-store shopping experience (usually) Post-exposure questionnaire Receive trial package to take home Phone follow up--and maybe offer to buy more

15. 15 19-15 Possible Drawbacks to STMs Mathematical complexity False conditions Possibly faulty assumptions on data, such as advertising budget or number of stores that will make the product available May not be applicable to totally new-to-the- market products, since no prior data available. Does not test channel member response to the new product, only the final consumer’s