Test Market - Practical Use of Test Markets

Practical Use of Test Markets

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 neighborhood
• 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?

The simple go or no-go decision, together with the related reduction of risk, is normally the main justification for the expense of test markets. At the same time, however, such test markets can be used to test specific elements of a new product's marketing mix; possibly the version of the product itself, the promotional message and media spend, the distribution channels and the price. In this case, several `matched' test markets (usually small ones) may be used, each testing different marketing mixes.

Clearly, all test markets provide additional information in advance of a launch and may ensure that launch is successful: it is reported that, even at such a late stage, half the products entering test markets do not justify a subsequent national launch. However, all test markets do suffer from a number of disadvantages:

1. 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.
2. 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'. All test markets give competitors advance warning of your intentions, and the time to react. They may even be able to go national with their own product before your own test is complete. They may also interfere with your test, by changing their promotional activities (usually by massively increasing them) to the extent that your results are meaningless.
3. Cost - Although the main objective of test markets is to reduce the amount of investment put at risk, they may still involve significant costs.

It has to be recognized that the development and launch of almost any new product or service carry a considerable element of risk. Indeed, in view of the on-going dominance of the existing brands, it has to be questioned whether the risk involved in most major launches is justifiable. In a survey of 700 consumer and industrial companies, Booz Allen Hamilton reported an average new product success rate (after launch) of 65 percent; although it had to be noted that only 10 percent of these were totally new products and only 20 per cent new product lines - but these two, highest risk, categories also dominated the `most successful' new product list (accounting for 60 percent).

New product development has therefore to be something of a numbers game. A large number of ideas have to be created and developed for even one to emerge. There is safety in numbers; which once more confers an advantage to the larger organizations.