Test markets offer marketers the opportunity to test new ideas before incurring the expense and risk of a national introduction. Marketers use test markets to experiment with:
- Brand positioning
- Product improvements and product cost reductions
- Advertising campaigns and spending levels
- Consumer and trade promotion strategies
- Distribution strategies
- Pricing strategies
There are three types of test markets: Standard test markets, controlled test markets, and simulated test markets. Marketers of consumer packaged goods are the primary users of test markets. Consumer packaged goods (CPGs) are products that are sold in packages that consumers use almost everyday. Due to the low cost of switching products and the short purchase cycle, consumer packaged goods markets are very competitive. Consumer packaged goods include breakfast cereal, packaged coffee brands, carbonated soft drinks sold in cans or bottles, laundry detergent, over-the-counter analgesics, soap, and cigarettes.
Standard Test Markets: Standard Test Markets are like a normal national marketing campaign except that they are conducted in a limited number of cities that are a fair representation of the national market. The marketer does everything in these test cities that it would do in the national market. The sales force sells the product to distributors and retailers. Marketing mix strategies are devised and implemented. To measure the performance of the test market, the marketer tracks sales, conducts surveys of consumers and distributors, tracks in-store activities. Results are then compared to the national campaign.
The advantage of a standard test market is that the marketer gets to measure the real-world performance of its marketing plan. But, there are a number of serious disadvantages. The primary disadvantage is that competitors learn about the marketer's new product or new marketing strategies well before the national introduction. This gives competitors ample time to prepare a counter attack and an opportunity to interfere with the test market. Other drawbacks are that standard test markets are very expensive and can take as long as three years to complete.
Controlled Test Markets: Controlled test markets provide marketers with an artificial testing venue that is cheaper and faster than standard test markets. Two companies offer controlled test markets: ACNielsen's Scantrack and Information Resources Inc.'s BehaviorScan. Controlled test markets are used most often with new product introductions. With a controlled test market, the research supplier offers the marketer a panel of stores. 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.
Simulated Test Markets: 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.
Test Market Considerations
Before committing the investment of time and money, marketers should consider the following questions:
- Are the risks of a costly failure high? If they are, marketers will consider investing in a test market.
- How quickly can competitors copy us? Marketers will not be inclined to invest in test markets if competitors can quickly duplicate their efforts.
- What is the difference in cost to produce the product for a test market versus a national market? If the difference is small, marketers are more likely not to invest in test markets.
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