Market ResearchTEST MARKETING

WHAT IS TEST-MARKETING

Test Marketing combines scientific testing with controlled field experimentation. Test-market is a market experiment conducted in an actual product market, meaning under real-world conditions.

USING TEST-MARKETING

Test-Marketing has three broad primary uses in marketing research.

Forecasting New Products Success

Test-Markets have long been used as a pilot test for a new product introduction. While test-markets can be complicated to implement, the basic idea is simple. A product can be marketed on a small scale under actual market conditions and the results used to forecast the success or failure once the product is introduced on a large scale. Companies using test-markets should realize that a new product concept also involves issues like advertising, pricing, retail prices etc. These issues may be manipulated within a test-market and a decision can be made.

Testing the Marketing-Mix

Test-Markets are not confined to studying new products or product modifications. They also are equally useful as a field experiment manipulating different marketing plans for existing products. Any element of the marketing mix can be examined with a test-market. (example with flyers page. 297)

Identifying Product Weaknesses

Test-Market experimentation also allows identification of previously undetected product or marketing plan weaknesses. The weaknesses can then be dealt with before the company commits to the actual sale launch, Often, this use of test-marketing occurs when a product underperforms in at least one location. Researchers can then follow up with other research approaches to try and reveal the reason for the lack of performance. Once identified, product modifications can be made that address these reasons specifically.

Advantages of Test-Marketing

The key advantage of test-marketing is the real-world setting in which the experiments are performed. Although focus groups and surveys also can be useful in describing what people may like in a new product, the actual behavior of consumers in a real test-market location is far more likely to lead to accurate projections.

A second advantage is that the results are usually easily communicated to management. Although the experiment itself can be difficult to implement, the data analysis is usually very simple.

Disadvantages of Test-Marketing

Disadvantages of Test-Marketing

Cost: Test-Marketing is very expensive. Consider that far most new products, companies have to actually create production facilities on a small scale, develop distribution within selected test-market cities, arrange media coverage specific to those locations, and then have systems and people in place to carefully monitor market results.

Time: Test-Markets cost more than just money. Test-Markets cannot be put together overnight. Simply planning a test-market usually takes months. Actually implementing one takes much longer. On top of the time for planning and implementation, researchers also must decide how long is long enough. When is the amount of data collected sufficient to have confidence in drawing valid conclusions? Test-Markets should be long enough for consumers to become aware of the product, have a chance to purchase it, consume it, and repurchase it at least one more time.

Thus, it must be longer than the average purchase cycle for that particular product. So the time required for test-marketing depends on the product. The purchase cycle for chewing gum is much shorter than a bottle of shampoo. The average test-market requires about twelve months.

Loss of Secrecy: Secrets no longer exist. In the case of a new product, not only does the competition know about the new product, but a competitor can sometimes benefit from the test-market by monitoring the same dependent variables. This may cause them to launch a competing product. In some cases, the competitor can even beat the originating company to the national marketplace.

Selecting a Test-Market site

Selecting test-market is, for the most part, a sampling problem. The researcher seeks a sample of test-market cities that is representative of the population comprised of all consumers in the relevant marketing area. If a new product is being launched throughout Australia, for example, the researcher must choose cities that are typical of all Australians. Thus, test-market cities should represent the entire competitive marketplace.

Factors to consider in Test-Market Selection

Factors to consider in Test-Market Selection

Population Size: No one size represents the best population for a test-market city. The population simply should be large enough to provide meaningful results with respect to the large population, yet small enough to ensure that costs are not prohibitive. U.S cities such as New York, Los Angeles and other cities like Tokyo, Mexico City etc are far too large to be a popular test-market. (Popular test-markets table page 305).

Demographic composition and lifestyle considerations: Ethnic backgrounds, incomes, age distributions, lifestyle, and so on within the market should be representative of the market segment to which an offering is targeted. If a product is intended to be equally targeted toward the entire U.S market, the product should then be test-marketed in cities that most closely match the entire U.S population.

Competitive Situation

Competitive market shares, competitive advertising, and distribution patterns should be typical so that test-markets will represent other geographic regions. If they are not representative, it will be difficult to project the test-market results to other markets. If a company has a good market share in a specific geographical area, it will be much easier than in another area that the market share is low.

Media Coverage and Efficiency

Local media (television spots, newspapers) will never exactly replicate national media. However, duplicating the national media plan or using similar to it is important. Sunday newspaper supplements are sometimes used as a substitute for national magazine advertising. Ideally, a market should be represented by the major television networks, typical cable television programming and newspaper coverage.

Media Isolation

Advertising in communities outside of the test-market may contaminate the test-market. Furthermore, advertising money is wasted when it reaches consumers who cannot buy the advertised product because they live outside the test area.

Self-Contained Trading Area

Distributors should sell primarily or exclusively in the test-market area.

Overused Test-Markets

If consumers or retailers become aware of the tests, they will react in a manner different from their normal. Thus, it is not a good idea to establish one great test-market and use it time and time again.