1. Dr. M. Gunawan Alif Program Pascasarjana Manajemen FEUI & MMUI
Market Testing
Dr. M. Gunawan Alif
Program Pascasarjana Manajemen FEUI
& MMUI

2. Market Test Testing

3. What Is Market Testing? Market testing is not test marketing!
Test marketing is one of many forms of market testing -- others include simulated test market, informal sale, minimarket, rollout.
Test marketing is also a much less common form now due to cost and time commitments and other drawbacks.

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. Test Marketing
Test marketing is the phrase commonly used to indicate an experiment, study, or test that is conducted in a field setting.
Two broad classes:
To test the sales potential for a new product or service
To test variations in the marketing mix for a product or service

6. Types of Test Markets
Standard test market: one in which the firm tests the product and/or marketing mix variables through the companies normal distribution channels
Controlled test markets: ones that are conducted by outside research firms that guarantee distribution of the product through prespecified types and numbers of distributors

7. Types of Test Markets…cont.
Electronic test markets: those in which a panel of consumers has agreed to carry identification cards that each consumer presents when buying goods and services
Simulated test markets: those in which a limited amount of data on consumer response to a new product is fed into a model containing certain assumptions regarding planned marketing programs, which generates likely sales volume

8. Test Markets
Test marketing is used in both consumer markets and industrial or B2B markets as well.
Lead country test market: test marketing conducted in specific foreign countries that seem good predictors for an entire continent

9. Criteria for Selecting Test Market Cities
Representativeness: Do demographics match the total market?
Degree of isolation: Palangka Raya and Palu are isolated markets; Surabaya is not isolated.
Ability to control distribution and promotion: Are there preexisting arrangements to distribute the new product in selected channels of distribution? Are local media designed to test variations in promotional messages?

10. Decision Matrix on When to Market Test
Figure 18.1
High
Low
Cost and Time
Savings
Scope of Learning
and Accuracy
High
Low
Stages of the product development cycle

11. How Market Testing Relates to the Other Testing Steps
Figure 18.2

12. Market Test Alternatives

13. BB Vs iPod Vs Toyota

14. Two Key Values Obtained from Market Testing
Solid forecasts of dollar and unit sales volume.
Diagnostic information to allow for revising and refining any aspect of the launch.

15. Deciding Whether to Market Test
Any special twists on the launch? (limited time or budget, need to make high volume quickly)
What information is needed? (expected sales volumes, unknowns in manufacturing process, etc.)
Costs (direct cost 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)

16. 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?

17. Methods of Market Testing, and Where Used
Figure 18.3

18. 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.

19. 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.

20. Simulated Test Market (STM)
Create a false buying situation and observe what the customer does.
Follow-up with customer later to assess likely repeat sales.
Often used for consumer nondurables.

21. Simulated Test Market Procedure
Mall intercept.
Self-administered questionnaire.
Advertising stimuli.
Mini-store shopping experience.
Post-exposure questionnaire.
Receive trial package.
Phone followup and offer to buy more.

22. Possible Drawbacks to STMs
Mathematical complexity
False conditions
Possibly faulty assumptions on data, such as 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

23. Controlled Sale by Informal Selling
Used for business-to-business products, also consumer products sold directly to end users.
Train salespeople, give them the product and the selling materials, and have them make calls (in the field, or at trade shows).
Real presentations, and real sales, take place.

24. Controlled Sale by Direct Marketing
More secrecy than by any other controlled sale method.
The feedback is almost instant.
Positioning and image development are easier because more information can be sent and more variations can be tested easily.
It is cheaper than the other techniques.
The technique matches today's growing technologies of credit card financing, telephone ordering, and database compilation.

25. Controlled Sale by Minimarkets
Select a limited number of outlets -- each store is a minicity or “minimarket.”
Do not use regular local TV or newspaper advertising, but chosen outlets can advertise it in its own flyers.
Can do shelf displays, demonstrations.
Use rebate, mail-in premium, or some other method to get names of purchasers for later follow-up.

26. Controlled Sale by Scanner Market Testing
Audit sales from grocery stores with scanner systems -- over a few markets or national system.
Sample uses:
Can use the data as a mini-market test.
Can compare cities where differing levels of sales support are provided.
Can monitor a rollout from one region to the next.

27. Minimarkets and Scanner Testing: IRI’s BehaviorScan and InfoScan
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.

28. The Test Market Several test market cities are selected.
Product is sold into those cities in the regular channels and advertised at representative levels in local media.
Once used to support the decision whether to launch a product, now more frequently used to determine how best to do so.

29. Advantages of Test Marketing
Risk Reduction
monetary risk
channel relationships
sales force morale
Strategic Improvement
marketing mix
production facilities
Allows most accurate method of forecasting future sales
Allows firms the opportunity to pretest marketing mix variables

30. Disadvantages of Test Marketing
Does not yield infallible results
Are expensive
Exposes the new product or service to competitors
Takes time to conduct
Cost ($1 mill+)
Time (9-12 months+)
hurt competitive advantage
competitor may monitor test market
competitor may go national
Competitor can disrupt test market

31. A Risk of Test Marketing: “Showing Your Hand”
Figure 18.5
Kellogg tracked the sale of General Foods' Toast-Ems while they were in test market. Noting they were becoming popular, they went national quickly with Pop-Tarts before the General Foods' test market was over.
After having invented freeze-dried coffee, General Foods was test-marketing its own Maxim brand when Nestle bypassed them with Taster's Choice, which went on to be the leading brand.
While Procter & Gamble were busy test-marketing their soft chocolate chip cookies, both Nabisco and Keebler rolled out similar cookies nationwide.
The same thing happened with P&G’s Brigade toilet-bowl cleaner. It was in test marketing for three years, during which time both Vanish and Ty-D-Bol became established in the market.
General Foods' test market results for a new frozen baby food were very encouraging, until it was learned that most of the purchases were being made by competitors Gerber, Libby, and Heinz.

32. The Rollout
Select a limited area of the country (one or several cities or states, 25% of the market, etc.) and monitor sales of product there.
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 national launch.

33. Types of Rollout By geography (including international) By application
By influence
By trade channel

34. Patterns of Information Gained During Rollout
Figure 18.7

35. 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.

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

37. Ref: Crawford & Benedeto (2008)
thank you