Test marketing is the final step before commercialization; the objective is to test all the variabilities in the marketing plan including elements of the product. Test marketing represents an actual launching of the total marketing program. However, it is done on a limited basis.
Three general questions can be answered through test marketing. First, the overall workability of the marketing plan can be assessed. Second, alternative allocations of the budget can be evaluated. Third, determining whether a new product introduction is inspiring users to switch from their previous brands to the new one and holding them there through subsequent repeat purchases. In the end, the test market should include an estimate of sales, market share, and financial performance over the life of the product.
Initial product testing and test marketing are not the same. Product testing is totally initiated by the producer: he or she selects the sample of people, provides the consumer with the test product, and offers the consumer some sort of incentive to participate.
Test marketing, on the other hand, is distinguished by the fact that the test cities represent the national market, the consumer must make the decision herself, must pay him or her money, and the test product must compete with the existing products in the actual marketing environment. For these and other reasons a market test is an accurate simulation of the national market and serves as a method for reducing risk. It should enhance the new product's probability of success and allow for final adjustment in the marketing mix before the product is introduced on a large scale.
However, running test marketing is not without inherent risks. First, there are substantial costs in buying the necessary plant and machinery needed to manufacture the product or locating manufacturers willing to make limited runs. There are also promotional costs, particularly advertising, and personal selling. Although not always easy to identify, there are indirect costs as well. For example, the money used to test market could be used for other activities. The risk of losing consumer goodwill through the testing of an inferior product is also very real. Finally, engaging in a test market might allow competitors to become aware of the new product and quickly copy it.
Because of the special expertise needed to conduct test markets and the associated expenses, most manufacturers employ independent marketing research agencies with highly trained project directors, statisticians, psychologists, and field supervisors. Such a firm would assist the product manager in making the remaining test market decisions.
- Duration of testing: the product should be tested long enough to account for market factors to even out, allow for repeat purchases, and account for deficiencies in any other elements in the new product (three to six months of testing may be sufficient for a frequently purchased and rapidly consumed convenience item).
- Selection of test market cities: the test market cities should reflect the norms for the new product in such areas as advertising, competition, distribution system, and product usage.
- Number of test cities: should be based on the number of variations considered (i.e. vary price, package, or promotion), representativeness, and cost.
- Sample size determination: the number of stores used should be adequate to represent the total market.
Even after all the test results are in, adjustments in the product are still made. Additional testing may be required, or the product may be deleted.
Trickier than you think
Everyone knows the fastest way to get rich is to start a dot-com business. According to the US Commerce Department, traffic on the Internet doubles every 100 days. To acquire an audience of 50 million, it took radio 30 years, television 13 years, personal computers 16 years, and the Internet four years.
Still, marketers who go online expecting to make an "overnight killing" are in for a bruising lesson. Getting on the Web takes an investment, and once there, you have to build your Web presence and brand. And there are still technical and logistical hurdles to clear. Just ask Julie Wainwright, who got a firsthand look at the new math after the pet-products website she heads, Pet.com, went public in 2000. After making its debut at USD 11 a share, the San Francisco-based Internet company's stock rose to USD 14 and then promptly dropped below USD 3.
Volatility in the Internet business has produced a new industry—Internet consultants. As a result, a plethora of recommendations have emerged for entering an Internet business. Here are some of the suggestions:
- Keep it simple—focus on providing compelling information.
- Put customers first—understand them and meet their needs.
- Make your site Web-friendly—do not assume everyone is technically competent.
- Spread the word—publicize your Web address, offline as well as on the Net, by putting it everywhere you do business.
- Be ready for success—a Web site can give you more business than you can handle.
- Although e-business moves fast: managers shouldn't move carelessly—do not take risks that jeopardize reaching your goals.
- Cash-flow problems are common with Internet start-ups—project the amount of cash needed, then double it.
- Creating a true brand is specially difficult with Internet start-ups—excellent customer service, not advertising, is likely the answer.
- Deliver the goods—getting goods delivered to a customer's doorstep in a timely manner is much more complicated for Internet businesses.
- Actively monitor the customer—this ongoing dialogue leads to a deeper understanding of a customer'spreferences and shopping habits, and that, in turn, leads to more personalized offerings and services.
Do not assume that the Web will solve all your problems or substitute for sound business judgment. "It is notsome sort of get-rich-quick scheme," says Mark Weaver, professor of entrepreneurship at the University of Alabama. "You have to be even more a perfectionist, more meticulous, and more prepared to adjust to thechanging rules of business online." 1