Test marketing a new product requires time and money, two commodities in short supply at most companies. Some manufacturers feel that taking the time to test market could remove the element of surprise and tip off competitors, who might learn of the new product while it's in test market and begin working on their own version. But compared to the expense of rolling out a dud on a national scale, discovering your product is a failure during test marketing can save both time and money. And it's an excellent way to check not only the viability of your product but the effectiveness of various promotional efforts.
One way manufacturers have avoided the question of test marketing is by introducing line extensions, new products that are spun off a successful brand name in hopes of cashing in on consumer loyalty and goodwill. These newcomers are often seen as sure things and so no testing is done. But if the product fails, it can cost more than money. It can damage your franchise, says Randy Smith, president of the Testing Services Division of Information Resources Inc. (IRI).
"In my view, you can destroy brand equity if you try to spread it too thinly with a lot of knock-off brand items that aren't really different. If they aren't successful then eventually that can start eroding people's perceptions of the core brand itself. I think there are a lot of benefits to giving a product a test flight, if you will, and making sure it has a reason to be. Because some of the products that have been introduced really haven't had a compelling reason to be on the shelves and therefore they haven't stayed there."
Scanner data
There are a number of ways to test market, at the market level, at the store level and within individual households. The proliferation of scanner data has opened up a variety of "electronic test market" possibilities. Using information from the syndicated tracking services such as Nielsen's Scantrack and IRI's InfoScan, and others such as IRI's BehaviorScan, regular tracking is possible, Smith says. "You have access to scanner data and you can track not only what your brand is doing but what the competition is doing with weekly data points. That information wasn't available in the early 80s. With the syndicated tracking services going to scanning there are a lot of other options so you can get down to a detailed level of information."
BehaviorScan, for example, tracks the purchases of individual households within the test market cities, andmarketers can target those consumers with advertising and couponing through direct mail, newspapers and television.
Fed up
The failure of so many new products has given manufacturers more to worry about than just lost sales. With shelf space at a premium, many grocers and other retailers are fed up with the cost of stocking new products and removing ones that don't sell. They have begun charging those costs back to the manufacturer in the form of slotting fees and failure fees, Smith says.
"Some of that has been born out of frustration with the blizzard of new products that has emerged. A lot of them are not successful, and that's frustrating to the retailer, who has to put products on the shelves and take them off and spend time evaluating new products. It's also frustrating for the consumer, who can't find the same product that was there last month and is having difficulty developing brand loyalty to products that seem to be in and out."
Key variable
Purchase cycle is a key variable in determining how long a company should test market. "For a short purchase cycle you're going to be able to see more quickly whether people have come back and bought the product a second or third time. If it's a longer cycle obviously you'll need to do a longer test. Most tests of new products tend to run six to twelve months."
Waiting that long to roll out a product can run counter to the short term focus that many companies have, Smith says. "It's the same focus that says, 'Let's promote the heck out of a brand instead of thinking about advertising and long term building.' Some of that may be the down side of the brand management concept. While there are a lot of positives associated with the brand management concept, one of the negatives is that people tend to be in positions on a particular brand for a short period of time and instead of thinking about the life cycle of a product they're looking for something they can prove to be a winner within a six month time period.
"If you're going to do your homework and really evaluate a test market before launching, it can take longer than six months, but I think it's in the longer term interests of the companies to think about finding products that are going to have staying power instead of just being in and out of the market quickly."
Be creative
To a company contemplating some test marketing, Smith offers an important piece of advice: be creative about designing a test market and using the data that come from it. "There are ways to conduct short term test markets that might only take three months. And there are ways to conduct them where you don't just test a single marketing plan, you test several simultaneously and that gives you more opportunities to win.
"Take those test market results and work creatively with the supplier to develop accurate sales stories for the trade to maximize opportunities for success. Our perception is that retailers are looking for more hard evidence of a product's potential when new products are brought to them.
"Obviously, I'm in the testing business, so I believe there should be more testing rather than less. But it's not as simple as deciding to do some testing. You need to do some careful planning and be creative about it. If you do that, it can turn out to be not just a win-win situation but win-win and win, for the manufacturer, the retailer and the consumer."