by A test market, in the field of business and marketing, is a geographic region or demographic group used to gauge the viability of a product or service in the mass market prior to a wide scale roll-out.
Simulated test markets (STMs) provide sales estimates of new products prior to launch. They are used by management to make the “go/no-go” decision prior to the launch of the new product.
The following information is obtained at both the concept and after-use stages, for forecasting trial and repeat volume:
- Purchase intention: This is gauged through statements that describe how respondents feel about buying the product (See example in Exhibit 11.8).
- Share of preference: Respondents select one or more products from a competitive set displayed on a simulated shelf.
- Claimed units: Respondents are asked how much of the product, if any, they will buy.
- Claimed frequency: Respondents are asked how often, if ever, they would buy the product if it became available.
The criteria used to judge the acceptability of a test market region or group include:
- A population that is demographically similar to the proposed target market; and
- Relative isolation from densely populated media markets so that advertising to the test audience can be efficient and economical.
The test market ideally aims to duplicate “everything” promotion and distribution as well as “product” on a smaller scale. The technique replicates, typically in one area, what is planned to occur in a national launch; and the results are very carefully monitored, so that they can be extrapolated to projected national results. The area may be any one of the following:
- Television area
- Internet online test
- Test town
- Residential neighbourhood
- Test site
A number of decisions have to be taken about any test market:
- Which test market?
- What is to be tested?
- How long a test?
- What are the success criteria?
Disadvantages:
- Replicability: Even the largest test market is not totally representative of the national market, and the smaller ones may introduce gross distortions. Test market results therefore have to be treated with reservations, in exactly the same way as other market research.
- Effectiveness: In many cases the major part of the investment has already been made (in development and in plant, for example) before the `product’ is ready to be test marketed. Therefore, the reduction in risk may be minimal; and not worth the delays involved.
- Competitor warning: Test markets can give competitors advance warning of a company’s intentions and time to react. They may even be able to go national with their own product before the test is complete. They may also interfere with a test, by changing their promotional activities (usually by massively increasing them) to the extent that results are meaningless.
- Cost: Although the main objective of test markets is to reduce the amount of investment put at risk, they may still involve significant costs.
They evaluate the strength of the mix on underlying factors that make new products appealing to consumers, such as the following:
- Novelty: Rating product on uniqueness.
- Likeability (and Relevance): Overall liking of the product.
- Credibility: Believability of the statements made about the product.
- Affordability: Price/Value perception.
Steps to Implement a Test Market
- Set the Marketing Objectives: Objectives can be based on the following quantitative measures: Market Share, Sales Volume, proportion of the target market who try the product or make repeat purchase, length of the purchase cycle, levels of consumer satisfaction, distribution levels achieved, etc.
- Select the Test Market type: Standard, Controlled, or Simulated Test Market
- Establish a budget: The budget must include the cost to produce the product for the test market, all research costs, and all marketing costs, including the production of promotional materials and the cost to distribute promotional messages.
- Develop detail test plans: These plans cover manufacturing, target market definition, product formulation, distribution, pricing, and promotion.
- Select the Test Markets: Marketer typically will require two test markets and a control market. Test markets should be geographically dispersed are provide a good representation of the national target market. The test market should run for 6 to 12 months, or longer for products with a long purchase cycle. The test markets should have a wide variety of media outlets.
- Execute the Test Plan
- Analyze the Results
Competitive responses
Even companies that do analyze their competitors usually fail to consider that a rival might choose not to respond to a strategic move. In ignoring that possibility, the strategist lowers his estimate of the expected value of his company’s move: the higher the perceived probability of counteraction by competitors, the lower the expected payoff. And with a lower expected payoff, the company is less likely to take bold action.
The probability of a competitor’s response to a competitive action is based on four factors:
- The type of action
- The reputation of the competitor taking the action
- The competitor’s dependence on the market
- Competitor resource availability
Companies that are highly concentrated in or dependent on an industry (or market) in which a competitive action has been taken are more likely to respond than are companies who do business in multiple industries and markets. This implies that single and dominant-business companies (classifications that will be described fully later) will be more likely to respond to competitive actions initiated in their primary industry than would a diversified company (a company that does business in multiple industries). If the action has a major (negative) effect on these market- or industry-dependent companies, a competitive response is likely regardless of whether the action taken was strategic or tactical.
Scanner Data
Suppliers monitor the checkout scanner data to measure initial and repeat purchases as well as the sales of competitive products. Distribution of the marketer’s brand is “forced” into these stores. This has an advantage and disadvantage. The advantage is that distribution is guaranteed. The disadvantage is that the marketer cannot gauge retailer’s reactions to the new product. Other disadvantages of controlled test markets are that competitors can look at the new product before its national launch. Another concern is that even though the Scantrack and BehaviorScan propriety models are very sophisticated, it is questionable whether the shoppers at the test stores actually represent “average” targeted consumers for the brand being test marketed.
Purchase Simulation Test
Like controlled test markets, simulated test markets were designed to overcome the drawbacks of standard test markets. Simulated test markets are not conducted in real-world markets; they are laboratory tests. A simulated test market is a staged or artificial marketplace where researchers expose subjects to advertising and other marketing mix variable to gauge the subjects’ purchase intent. Simulated test markets are significantly faster and cheaper than standard test markets because the marketer does not have to execute the entire marketing plan.
The companies that run simulated test marketing ACNielsen’s Bases, Harris Interactive’s Litmus, and Synovate’s MarkeTest use a variety of mathematical models to estimate the effects of the tested variables.
Here is how a simulated test market works:
- Consumers are selected for the experiment based on the definition of the brand’s target market
- Consumers are invited to a central location were they are exposed to advertising or other stimuli for the test brand and its competitors
- Consumers are given an opportunity to buy the test brand in a real or simulated store
- Consumers are contacted after they had time to use the product, so researchers can gauge their satisfaction and interest in repurchasing the brand
- The data collected is then used as input for the simulated test market’s proprietary model.
- After the model has been run, estimates of market share, sales volume, and other metrics are presented to the client.
