A former university media communications professor, Sallie, an independent publisher, also writes romantic fiction novels and short stories.
What Is Test Marketing?
Companies offering new products and services want to know how consumers might respond before they formally launch into the marketplace. Test marketing gives marketers a good idea about sales potential and other factors that can affect it.
In marketing, a test market is used to represent the actual market for a product/service. The test market must be demographically and/or geographically similar to the actual market so that a manufacturer/producer can accurately gauge the potential viability of a product or service prior to a widescale roll-out.
What Are the Methods of Test Marketing?
There are several methods available:
- Market testing
- Focus group interviews
- Consumer surveys
- Trade show exhibits
Companies will choose one or more of these methods based on the type and amount of information marketers need, what the company is offering, and the consumer demand that's expected.
Why Should Companies Test Market?
Many costs are involved when introducing a new product/service. A company may have to build or rent a manufacturing facility. In the case of a new consumer packaged good, a company may have to spend between $10 million and $200 million for advertising, sales promotion, and other marketing efforts in the first year. The company must also decide where to launch the new product—in a single location, within a region, nationwide, or internationally. Market testing can provide valuable information to help in this decision-making process.
What Is Being Tested?
Test marketing allows the company to test the product as well as its entire marketing program (including the potential ups and downs) on a narrow scale, before launching on a broad scale.
The following list includes elements that are tested for the purpose of finding out what might be good, adequate, or in need of adjustment prior to conducting a full-scale launch:
- Product positioning strategy
- Advertising strategy and tactics
- Product distribution strategy
- Product pricing
- Branding and product packaging
- Budget levels
How Much Market Testing Is Needed?
The amount that's needed will vary with each new product or service. It's also important to note that when the costs of developing and introducing the product are very low, or when management is already confident about the new offering and its sales potential, it may be decided that little or no test marketing is needed.
The decision is not made casually. This research project is most useful when a company is introducing a new product that requires a big investment, or when it is unsure about the new offering or its plans for marketing. Because costs can be high, the decision to engage in it takes serious consideration.
Still, when compared to what it might cost a company to make a major marketing mistake, testing costs can seem relatively small. Even though test marketing cannot guarantee sales success for any product or service, it usually provides valuable insight that companies can use to help determine the next best steps to take.
3 Test Market Approaches
Consumer product companies usually choose one of three approaches, including:
- Standard test markets
- Controlled test markets
- Simulated test markets
Standard Test Markets
This is widely used for major product testing. In this approach, a company picks a small number of representative test cities where it will conduct a full-blown marketing campaign. It will use techniques such as in-store audits, consumer and distributor surveys, and other measures to gauge the product's performance during the testing phase.
Standard test markets, while they have great benefits, also have significant drawbacks. Perhaps the main drawback is simply that competitors are able to see and learn about the new offering long before it is introduced to the public. Other drawbacks include:
- They are costly to use.
- Testing can take an extended amount of time to conduct (sometimes as long as three to five years).
- Competitors can monitor or interfere with results by lowering the price of their products in test cities, increasing promotional efforts, or purchasing all inventory of the product being tested.
Controlled Test Markets
This approach can be cheaper and quicker to use than the standard one. There are several research firms that keep controlled panels of stores ready for market tests. These stores have agreed to carry new products for a fee. Services such as ACNielsen’s Scantrack and Information Resources Inc.’s (IRI) BehaviorScan, monitor and track individual consumer behavior for new products—from the viewing of product information to purchasing activity at the checkout counter.
In addition to costing less, retail distribution is “forced” in the first week, and that means the controlled test can be completed much more quickly than standard test markets. One major drawback for companies using this method is that even though the research companies are experienced in projecting test market results to broader markets and can usually account for biases, the question still remains as to whether or not the controlled market represents the real market for the product.
Another drawback is that just as with the standard method, this approach allows competitors to get a look at the new product before it is formally introduced.
Simulated Test Markets
This can also be cheaper to use and is quicker than standard test markets. Using this method, new products are tested in a "simulated" shopping environment. Simulation provides a measure of a product purchase as well as the effectiveness of advertising messages against those of market competitors.
Here's how it works: The company or research firm shows advertisements and promotions for a variety of products (including the new product that's being tested) to a sample of consumers. It gives consumers a small amount of money and invites them to a real or laboratory store where they may keep the money or use it to buy items from the store. The researchers then track how many consumers buy the new product and how many purchase competing brands.
Advantages and Drawbacks
Researchers then ask consumers the reasons for their purchase or non-purchase. Weeks later, the researchers conduct telephone interviews with consumers to determine their attitudes, usage, satisfaction, and repurchase intentions for the product. Once that's done, using sophisticated computer models, the researchers are able to project national sales potential based on the results of the test.
Simulated test markets overcome some of the disadvantages of the standard and controlled methods. Some advantages are:
- They usually cost a lot less.
- They are completed much more quickly (can be run in eight weeks).
- They keep the new product out of competitors’ view.
A drawback to simulated testing is that because of their small samples and simulated shopping environments, many marketers don't think they are able to provide results that are as accurate or reliable as larger, real-world tests.
Regardless, simulated test markets are widely used because they are fast and inexpensive.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2012 Sallie Beatrice Middlebrook PhD
Oli Woods on March 11, 2020:
Great article Sallie, I like how you’ve shown how big NPD costs can be, whilst also mentioning that this varies so much between industries and companies.
I run a Shopify app called PreProduct targeting this issue. It allows you to test and make sales for potential future products, either through email collection or pre-orders (the pre-orders only transact if your specified sales target is reached). It can be a good way to iterate through product ideas risk-free, as well as make sales before your stock is ordered.
Sallie Beatrice Middlebrook PhD (author) from Texas, USA on July 29, 2016:
You're welcome, and thanks for your visit, qyrmarketresearch. Always appreciate it!
Tina Ning from China on July 27, 2016:
Thanks for info!
Sallie Beatrice Middlebrook PhD (author) from Texas, USA on December 02, 2015:
Thanks, breathing, for your visit and your insightful comments. I agree with you, that "appropriate product test marketing" has to be the goal, or else the results are not likely to provide the needed information. Thanks again.
TANJIM ARAFAT SAJIB from Bangladesh on December 01, 2015:
A great hub on product test marketing basics. Anyone looking to do good in the field of product test marketing can get the basic concepts from this post. The discussion on the types of product test marketing has been excellent! The types differ depending on the company size, product type, company policy etc. Standard test markets are always the best but small companies cannot afford that. In that case they will look to go with either controlled or simulated depending on their requirements. If standard test marketing is conducted where simulated is needed and vice versa then the result will be disastrous. So the appropriate product test marketing should be conducted.
Overall a great post indeed for the product marketers.
Sallie Beatrice Middlebrook PhD (author) from Texas, USA on July 15, 2015:
Thank you dhimanreena, for the visit and the comments. You're right, test marketing helps illuminate good opportunities. It can certainly help businesses make more informed marketing decisions.
Reena Dhiman on July 15, 2015:
Thank you so much for tips regarding product test marketing. A lot of good opportunities can be met with this marketing skills.
Sallie Beatrice Middlebrook PhD (author) from Texas, USA on March 07, 2015:
Thanks so much, TheBizWhiz, for visiting and for commenting on my Hub. You're right, this topic is often overlooked, but test-marketing can provide invaluable insight that can help a company improve marketing strategies and sales success. Too bad it is often overlooked. Wishing you all the best as you begin creating your own Hubs.
TheBizWhiz on March 07, 2015:
This is a fantastic Hub. So well written and on an often overlooked subject. Great job!
Sallie Beatrice Middlebrook PhD (author) from Texas, USA on December 22, 2014:
sammmy on December 21, 2014:
Sallie Beatrice Middlebrook PhD (author) from Texas, USA on April 25, 2014:
Thanks for the visit and for reading Stella Ford. Indeed, there are some advantages to promoting products through trade shows, or "exhibit marketing." For it to be effective, marketers need to have specific objectives in mind that they want to measure, that can be effectively measured through trade show event participation. Done properly, with key efforts being executed prior to the event, during the event, and then following up after the event, exhibit marketing can definitely be an integral part of an overall sales and marketing program.
Sallie Beatrice Middlebrook PhD (author) from Texas, USA on December 23, 2012:
Informationshelte, great information on wikipedia.Thanks for sharing.
informationshelte on December 22, 2012:
I agree with you on that reverse engineering is a good method (although not always lawful, unless when applied with permission) to produce identical products taken from competitors. Here is the relevant link from Wikipedia: "http://en.wikipedia.org/wiki/Reverse_engineering&q...
Sallie Beatrice Middlebrook PhD (author) from Texas, USA on December 22, 2012:
Thanks for reading informationshelte. I appreciate your comments and your insight. When product ideas are good with great market potential, as a test market might reveal, potential competitors with deep pockets will usually find a way to imitate, if the so desire. Reverse engineering is one way they might begin the research process. Even if it's costly, if they think the return on the investment will be worth it, I think some would most likely create a competitive market entry.
informationshelte on December 22, 2012:
This is a valuable analysis on the various product test marketing methods and approaches.
I think that selecting the most appropriate one depends on the features of the specific product. For example, if it is really hard for competitors (based on a number of factors such as the lack of relevant or adequate resources) to imitate the product, then there should be no fear in testing it in public.