Steps in a test market study

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Once the decision has been made to conduct test marketing, a number of steps must be carried out if we are to achieve a satisfactory result.

Step One: Define the Objective As always with these kinds of lists, the first step is

to define the objectives of the test. Typical test market objectives include the following:

▪ Develop share and volume estimates.

▪ Determine the characteristics of people who are purchasing the product.

▪ Determine the frequency and purpose of purchase.

▪ Determine where (retail outlets) purchases are made.

▪ Measure the effect of sales of the new product on sales of similar existing products in the line.

Step Two: Select a Basic Approach After specifying the objectives of the test market

exercise, the next step is to decide on the appropriate type of test market, , we discussed the characteristics,  advantages, and disadvantages offour types of test markets:

•  Traditional or standard test market
• Scanner or electronic test market
•  Controlled test market
• Simulated test market (STM) (See Practicing Marketing Research on page 216 for more discussion of STMs.)

The decision regarding which type of test market to use in a given situation depends on how much time you have, how much budget you have, and how important it is to keep the competition in the dark about what you are planning to do.

Step Three: Develop Detailed Test Procedures After the objectives and a basic approach for the test have been developed, the researcher must develop a detailed plan for conducting the test. Manufacturing and distribution decisions must ensure that adequate product is available and that it is available in most stores of the type that sell that particular product class. In addition, the detailed marketing plan for the test must be specified, including the basic positioning approach, the actual commercials to be used, pricing strategy, media plan, and various promotional elements.

Step Four: Select Test Markets The selection of markets for the test is an important decision. A number of factors must be taken into account in making this decision.  First, there are the overall standards:

•  There should be a minimum of two test markets, in addition to a control market, for an existing national brand or a minimum of three markets for testing a new brand.
• The markets selected should be geographically dispersed; if the brand is a regional brand, the markets should cover several dispersed markets within that region.
•  Markets should be demographically representative of the United States, unless, for  instance, a pronounced ethnic skew is desirable for a specific brand.
•  Depending on the product purchase cycle, the test should be run for at least 6 months, up to 12 months, before the results can be considered projectable. If the product is purchased infrequently, it is advisable to run the test for even longer than a year.
•  The market must have a variety of media outlets, including at least four television stations, cable penetration no more than 10 percent above or below the U.S. average, at least four radio stations, a dominant local newspaper with daily and Sunday editions, aSunday supplement with a syndicated edition, or a local supplement of similar quality.

Step Five: Execute the Plan Once the plan is in place, the researcher can begin execution. At this point, a key decision has to be made: how long should the test run? The average test runs for 6 to 12 months. However, shorter and longer tests are not uncommon. The test must run long enough for an adequate number of repeat purchase cycles to be observed in order to provide a measure of the “staying power” of a new product or marketing program. The shorter the average period, the shorter the test needs to be. Cigarettes, soft drinks, and packaged goods are purchased every few days, whereas such products as shaving cream and toothpaste are purchased only every few months. The latter would require a longer test. Whatever the product type, the test must be continued until the repeat purchase rate stabilizes. The percentage of people making repeat purchases tends to drop for some period of time before reaching a relatively constant level. Repeat purchase rate is critical to  the process of estimating ultimate sales of the product. If the test ends too soon then sales will be overestimated.

Two other considerations in determining the length of the test relate to the expected speed of competitor reaction and the costs of running the test. If there is reason to expect that competitors will react quickly to the test marketing (introduce their own versions of the new product), then the test should be as short as possible. Minimizing the length of the test reduces the amount of time competitors have to react. Finally, the value of additional information to be gained from the test must be balanced against the cost of continuing to run the test. At some point, the value of additional information will be outweighed by its cost.

Step Six: Analyze the Test Results Results should be evaluated throughout the test period. However, after completion of the experiment, a more careful and thorough evaluation of the data must be performed. This analysis will focus on four areas:

•  Purchase data. The purchase data are most important in most experiments or test markets. The levels of initial purchase (trial) throughout the course of the experiment provide an indication of how well the advertising and promotion program worked. The repeat rate (percentage of initial triers who made second and subsequent purchases) provides an indication of how well the product met the expectations created through advertising and promotion. Of course, the trial and repeat purchase results provide the basis for estimating sales and market share in the broader market.
• Awareness data. How effective were the media expenditures and media plan in creating awareness of the product? Do consumers know how much the product costs? Do they know its key features?
•  Competitive response. Ideally, the responses of competitors should be monitored during the period of the test market. For example, competitors may try to distort test results by offering special promotions, price deals, and quantity discounts. Their actions may provide some indication of what they will do if the product moves into national distribution and some basis for estimating the effect of these actions.
• Source of sales. If the product is a new entry in an existing product category, it is important to determine where sales are coming from. In other words, which brands did the people who purchased the test product previously purchase? This information provides a true indication of real competitors. If the firm has an existing brand in the market, it also indicates to what extent the new product will take business from existing brands and from the competition. Based on the evaluation, a decision will be made to improve the marketing program or the product, drop the product, or move the product into national or regional distribution

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