A test market , in the field of business and marketing, is a geographic region or demographic group used to measure the viability of a product or service in the mass market . The criteria used to judge the acceptability of a test market region or group include:
- a population that is demographically similar to the proposed target market ; and
- relative isolation from densely populated media markets so that advertising can be both efficient and economical.
The test market ideally aims at duplicate “everything” – a smaller scale. The technical replicates, typically in one area, what is planned to occur in a national launch; and the results are very carefully monitored, so that they can be extrapolated to projected national results. The area may be any of the following:
- Television area
- Internet online test
- Test town
- Residential neighborhood
- Test site
A number of decisions have been made about any test market:
- Which test market?
- What is to be tested?
- How long a test?
- What are the success criteria?
The simple go or no-go decision, together with the related reduction of risk, is normally the main justification for the expense of test markets. At the same time, however, such test markets can be used to test specific elements of a new product’s marketing mix ; possibly the version of the product itself, the message and media spend, the distribution channels and the price. In this case, several `matched ‘test markets (usually small ones) may be used, each testing different marketing mixes.
Clearly, it is reported that, even at such a late stage, it is reported that, even at such a late stage, However, all test markets
- Replicability – Even the largest market is not totally representative of the national market, and the smaller ones may introduce gross distortions. Test market results, therefore, in the same way as other market research.
- Effectiveness – In many cases before the product is ready to be tested marketed. Therefore, the reduction in risk may be minimal; and not worth the delays involved.
- Competitor warning – Test markets can give competitors advance warning of a company’s intentions and time to react. They may even be able to go national with their own product before the test is complete. They may also interfere with a test, by changing their promotional activities (usually by massively increasing them) to the extent that results are meaningless. [ quote needed ]
- Cost – Although the objective of test markets is to reduce the amount of investment at risk, they may still require significant costs.
It has to be recognized that the development and the introduction of a substantial element of risk. Indeed, in view of the ongoing dominance of the existing brands, it has been questioned whether the risk involved is most justifiable. In a survey of 700 consumer and industrial companies, Booz Allen Hamilton reported an average of 65 percent; It was reported that only 10 percent of these were totally new products, but these two categories were the highest-rated categories of the most profitable products (accounting for 60 percent).
New product development has something to do with a numbers game. A large number of ideas have been created and developed for even one to emerge. There is safety in numbers; which one more to the larger organizations.
Risk versus time
Most of the stages of testing, which are the key parts of the new “product” process, are designed to reduce risk; to ensure that the product or service will be a success. However, all of them take time.
In some markets, such as fashion businesses for example, The greatest risk here is not having the “product” available at the right time, and ahead of the competitors. These markets tend to be more of a product of the past, and typically
When to enter a market, a conscious product. In relation to competitors there are two main alternatives:
- Being first into a market carries considerable risks. It is important to have a major, leading and ongoing, share of that market in the long term. Pioneering is often the province of the smaller organizations, it is a small scale, since their investment can be much greater than that of the majors.
- This offers the reverse strategy. The risk is minimized since the pioneer has already demonstrated the viability of the market. The other hand, the related reward, that of becoming the market leader, may also be missed.
To a certain extent this discussion has been long since been overtaken by events. Japanese corporations led the way in reducing development time dramatically, and even to halve it in the very mature car industry. To quote George Stalk of the Boston Consulting Group:
The effects of this time-based advantage are devastating; Companies are simply losing their leadership in technology and innovation … Unless US companies are expanding their product development and introduction cycles from 36-48 months to 12-18 months, Japanese manufacturers will easily out-innovate and outperform them.
Accordingly, the choice to pioneer or to follow no longer exists in a number of industries. The only way for an organization to survive may be to shorten its development.
One form of new product launch, which is little discussed, but is probably the most prevalent – and hence most important – of all, is that of a new product; usually an “improved” version. The risk levels may be much reduced, since there is an existing user base to underwrite sales (as long as the new product does not alienate them – as New Coca-Coladid in the US and New Persil did in the UK). Such an introduction will be complicated by the fact that, at least for some time, there will be two forms of the product in the pipeline. Some firms may opt for a straight cut-over; one day the old product will be coming off the production line, and the next day the new product. Most will be favored for parallel running for a period of time, even if they are forced by their distribution chains. This ensures that the new really does, eventually, replace the old; and it can reveal that both can run together.
Virtual test markets
The significant amounts of time and resources required to conduct test markets. The risk to reveal a new product design is very important to a company that deals with fast moving and highly competitive markets, which is independent of any cost & time considerations. To overcome these limitations, so called Virtual Test Markets, was devised. Virtual Test Markets are computer simulations of consumers, companies and the market environment. The basis of this test is a multi-agent system of artificial intelligence. In a virtual test market, new products or marketing and distribution strategies can be tested. Another advantage is the ability to test many different products in one of the following situations.
- Albany, New York and Peoria, Illinois (traditional United States test markets)
- Haßloch (one of Germany’s test markets)
- Booz, Allen and Hamilton Inc., New Product Management for the 1980s (1982)
- Klan, Arhur; New trends of Global Marketing
- Stalk G. Jr .; “Time – the next source of competitive advantage”, Harvard Business Review (July-August 1988)