Understanding Pretest Marketing and Test Marketing in New Product Development, Summaries of Marketing

Download Understanding Pretest Marketing and Test Marketing in New Product Development and more Summaries Marketing in PDF only on Docsity! Implementing New product Decision UNIT 17 PRETEST MARKETING AND TEST MARKETING Objectives After reading this unit you should be able to: discuss pretest marketing methods; • • • explain ASSESSOR model; and describe marketing methods Structure 17.1 Introduction 17.2 Assessor Model 17.3 Preference Model 17.4 Trial Repeat Model 17.5 Test Marketing 17.6 Test Marketing or No Test Marketing 17.7 Issues in Test Marketing 17.8 Summary 17.9 Self-Assessment Questions 17.10 Further Readings 17.1 INTRODUCTION Test marketing is the penultimate step in new product development and the last opportunity to safeguard against the introduction of `wrong' new product in the market. Test marketing is an expensive method not only in terms of money, time and other resources, but also the exposure to competition. Hence, alternative methods are suggested before test marketing, like in-house use test, control location or simulated test marketing, mini-market testing, and regional rollouts. In the pretest market methods the attempt is to simulate the key factors of an actual market condition of a new product introduction to act upon the potential consumer, however in a controlled condition. This helps in better understanding of the impact of key factors on consumption and simultaneously help in reduction in time, space and other resources for testing the product. The main factors suggested by Yankelvich, Skelly and White are. Creation of awareness among the potential consumer uses various communication mechanisms. • • • • • • • • Providing genuine opportunity to the consumer to buy with some interest. Creating a genuine interest for trying the product. Mechanism for collecting free base immediately on factors either encouraging or discouraging use of the product. The products needs to be put on to regular in-house use test, without the knowledge that they are being samples in a test. Repeat purchase measure. Frequency of use measure. Benchmarks for decision making. Pretest Marketing (PTM) has to be designed in such a way it reflects the current market competition situation, Physical product including packaging advertisement copy, price, and the promotion budget go as into PTM, hence some advertisement is necessary. Number of developed over a period of time. 28 Protest Marketing Pretest market testing would be conducted when the product with packaging is made available in sufficient quantities, advertising copy is ready, and the decision-makers are in a position to decide the marketing mix elements and a resource budget. The resource approach would help in estimating the following:' 29 and Test marketing Forecast the long-term market share of the product and sales volume over the decision period. • • Estimate the draw (sales of new product drawn from competitor's products) and cannibalization (sales achieved at the expense of company's own products). Provided diagnostic information to help in improving the product, advertisement copy and other relevant launch materials like packaging etc. Can provide approximate estimates of market share for different marketing strategies. 17.2 ASSESSOR MODEL The basic procedure of ASSESSOR approach is presented in the Exhibit 17.1 ASSESSOR estimates the market share using two models, first a preference model and the second, trial repeat mode. If both the models predict similar forecasts, it increases the confidence of the decision maker, if it generates divergent forecasts it would caution the decision maker, to look into the diagnostic information much more closely and seriously. Design Procedure Measurement O1 Personal interview for respondent screening Criteria for target group identification O2 Premeasurement for established brands (self-administered questionnaire) Composition of `relevant set' of established brands, attribute weights and ratings, and preferences. X2 Advertisement exposure of established and new brands [O3] Measurement of reactions to the advertisements (Self- administered questionnaire) Optional data can be collected about the believability and likability Implementing New respondent will include the new product in their consideration set. That means every body in the marketplace who includes the new product in their consideration set. To remove this bias, the market shares can be weighted using the proportion of respondents who have included the new product in their consideration set, 32 product Decision Wnew : The percentage of respondents who had the new product in their consideration set. Similarly, the weighted market shares can be obtained for all the products. Using the pre trial and post trial market shares it is possible to estimate the cannibalization and draw. To do this we have to participation the respondents into two groups, partition with the new product in their consideration set (Wnew )and others (1-Wnew). Following equations could be used to estimate the sources of market share for the new product. MS' j = Market share of the product j after the new product is introduced. Guarantee assumption that the market has not expanded between the pre and post think. The extent the new product draws from the projects can be written as: Dj=Msi -MSj The sum of all draws across the existing products is equal to the market share for the new product. The percentage of new product sales drawn from the company's brands/products is considered to be cannibalization. The proportion of sales obtained at the expense of competitors products/brands is called draws or incremental sales. A new product with higher incremental sales would be good. However, in practice there may be new products with higher cannibalization. In those cases the decision-maker has to analyse the implications of new product on total financial contributions to the firm. A numerical example of preference model is presented Exhibit 17.2. (Adapted from Lilien and Rangaswamy 1998). Exhibit 17.2 Example of preference model used in ASSESSOR Preference ratings Pre-use (Sij) Post-use (S ij) Con- sumer Br1 Br2 Br3 Br4 Br1 Br2 Br3 Br4 NewBr 1 0.1 0.0 4.9 3.7 0.1 0.0 2.6 1.7 0.2. 2 1.5 0.7 3.0 0.0 1.6 0.6 0.6 0.0 3.1 3 2.5 2.9 0.0 0.0 2.3 1.4 0.0 0.0 2.3 4 3.1 3.4 0.0 0.0 3.3 3.4 0.0 0.0 0.7 5 0.0 1.3 0.0 0.0 0.0 1.2 0.0 0.0 0.0 6 4.1 0.0 0.0 0.0 4.3 0.0 0.0 0.0 2.1 7 0.4 2.1 0.0 2.9 0.4 2.1 0.0 1.6 0.1 8 0.6 0.2 0.0 0.0 0.6 2.2 0.0 0.0 5.0 9 4.8 2.4 0.0 0.0 5.0 2.2 0.0 0.0 0.3 10 0.7 0.0 4.9 0.0 0.7 0.0 3.4 0.0 09 Protest Marketing Choice probabilities Pre-use (Pij) Post-use (P'ij) Con- sumer Br1 Br2 Br3 Br4 Br1 Br2 Br3 Br4 New Br 1 0.00 0.00 0.63 037 0.00 0.0 0.69 031 0.00 2 020 0.05 0.75 0.00 0.21 0.03 0.03 0.00 0.73 3 0.43 0.57 0.00 0.00 0.42 0.16 0.00 0.00 0.42 4 0.46 0.54 0.00 0.00 0.47 0.50 0.00 0.00 0.03 5 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 6 1.00 0.00 0.00 0.00 0.80 0.00 0.00 0.00 020 7 0.01 035 0.00 0.64 0.03 0.61 0.00 036 0.00 8 0.89 0.11 0.00 0.00 0.02 0.00 0.00 0.00 0.98 9 0.79 021 0.00 0.00 0.82 0.18 0.00 0.00 0.00 10 0.02 0.00 0.98 0.00 0.04 0.00 0.89 0.00 0.07 UMS 38.0 28.3 23.6 10.1 28.1 24.8 16.1 6.7 243 DR 9.9 3.5 7.5 3.4 WD 2.0 0.7 1.5 0.7 33 and Test marketing Notes : B 1-B4 : Brands, New Br: New Brand. UMS: Unweighted market share (%), DR: Draw of new product from other brands, WD: Draw of new product weighted by Wnew in percentage. There are four brands and ten consumers. The preference ratings are converted to choice probabilities using the parameter 1.9 (b). Weight, Wnew is used to calculate the draw. The weights are the proportion of consumers having the new product in their consideration set, to 0.2. 17.4 TRIAL REPEAT MODEL ASSESSOR uses trial-repeat model for estimating long-sum market share. Using two approaches would help in increase in confidence of the estimates. Following standard formula is used to estimate the long-run market share of the new product using trial and repeat measures generated during the laboratory and post usage data collection., MS new= t*r*u Where t = Trial rate: The cumulative proportion of consumers in the target market that eventually tries the new product. r = Repeat rate: The proportion of consumers who are trying the new product, and who will become long run repeat purchases. u = Usage rate: Trial rate is estimated using the formula: t = F*K*D + C*U - (F*K*D) (C*U) Where F*K*D = Those consumers who try. C*U = Those consumers who have been given samples. (FKD) (CU) This term is an adjustment for double counting. F = Long-term probability of trial when there is total awareness and unlimited distribution of the new product to the target segment. The proportion of consumers who purchased the new product in laboratory store. K = Long-run probability of awareness that is expected. It is in the formula based on the management judgement. Implementing New D = Long-run probability that the new product will be available to the target segment. The estimates are mostly desired from the proportion of outlets that carry the product. It is also incorporated based on the management judgement. C = The probability that the consumer in the target segment receives the new product sample. Management based on the product launch plan also determines this. U = The probability that the consumers who receives a sample will use it. This is also an estimate based on part usage rates and management judgement. 34 product Decision In summary FKD, denotes the proportion of consumers who will try the new product if they are aware about the new product and if the product is available to them in their convenient shopping place. The term also refers to the proportion of consumers who will try if the product is provided as sample. The third term (FKD) (CU), is included to adjust the double counting for those who both purchase the new product and receive sample. The long-term repeat rate is estimated in ASSESSOR by the following formula: The estimate of repeat rate is obtained from the information collected during the post usage survey (Phase II data collection, O5 in Exhibit). The formula is derived using Markov chain. At any given time period eti, the purchasers of the new product could be divided into two groups; For Example the new brand of shampoo `Vatika'. Then the two groups would be; (1) those who bought Vatika last time and those who did not buy. The following diagram would illustrate what would happen at the .time period t+ 1. Among the consumers who bought Vatika at time t (X), some proportion of consumers will buy Vatika in t+l, their next purchase occasion (R), the remaining people might have purchased other brands (X- R). In the same way those consumers who didn’t buy Vatika in the time period t, also switchover to Vatika in the time period t+I (SB). The remaining group will continue to purchase the competing brands. Where PVV = Refers to the probability that the consumer who purchased Vatika (new product) at the time period t, would buy Vatika in the second purchase at the time period t+l. POV = Refers to the probability that the consumers who purchased other than Vatika in time period t, would switch to Vatika in their second purchase at time period t+l. PVO I - PVV Poo = I - PVO This matrix is called switching matrix in Markov process. Our interest is if the Protest Marketing Activity 2 37 and Test marketing State advantages and disadvantages of test marketing the following products: i) Liquid shoe polish ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... ii) Petro card ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... iii) Simputer (Low Priced Computer) ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... iv) New Brand of Home Furniture ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... 17.7 ISSUES IN BES'T MARKETING Designing Test Market Certain important issues have to be made clear before starting test marketing operations. The national market place should be ready, final packaging and advertising should be ready. The national advertising expenditure has to be converted in to GPS, correspondence between advertising expenditure in test marketing and national, GRP should be specified. Importantly, a minimum bench mark sales has to be specified for national roll out or withdraw of the new product. The next important question is in which markets the test should be conducted. To have a good predictability, normally 3-5 percentage of the households is considered reasonable. However, adequate care has to be taken to select sample markets to have fair representation of the diverse markets. Especially the key variables, like cultural composition, household income distribution, demographic profile should be identified earlier and representative samples have to be chosen for test marketing. Duration of Test Marketing Normally test markets are run for ten to twelve months. An important consideration in deciding the duration of test market is length of purchase cycle. Products with longer purchase cycles, like body deodorants, or perfumes need for a longer test market and shorter purchase cycles products like, shampoo sachet, toothpaste requires only shorter duration test markets. On an average the test markets are run to monitor 5-6 cycles of repurchase. However, products with strong seasonal behaviour should be tested through the entire season. For example, soft drinks, certain garments exhibit strong seasonal behaviour. As mentioned earlier preferably whatever variables can be tested earlier. However, certain variables like sales promotion, trade promotion, price, advertising impact and expenditure can be better tested in the test markets. Design of Experiments Test markets are to a large extent a controlled experiment. Hence, careful consideration has to be given for designing the experiment. For evaluating different marketing startegies we Implementing New have to alter the marketing variables to different levels at controlled condition and observe the impact on the sales. Various experimental designs like Completely Randomized Block Design, Latin Square Design, or Greco-Latin Square Design can be used. 38 product Decision Data Collection from the Test Markets Several methods are used to collect data from the test markets, such as store audits, consumer panels, and consumer surveys. Store Audits The test marketers have the information of shipments to the retailers. The off takes from the retail outlets are surveyed. During the initial phase of the test marketing the early off-takes from the company will go to fill the distribution channels. Hence, there will be a delay in observing consumer response in the early phase. Apart from the sales data, additional information about the competitive products, prices and dealer relationships, any competitive action etc. also gathered. In India some market research organizations like ORG MARC conducts regular retail audit. This information also provides valuable data for the decision-making. Consumer Survey Store audit provides only the sales data, it does not contain information like trial and repeat purchases. For estimating the steady state market share, we need the proportion of trial and repeat purchases. The best way to obtain this information in test market is direct consumer survey. Simultaneously, additional information like brand awareness, other brands purchased, demographic and psychographic variables are also collected, and this information would be useful for decision making. Diary Panel A group of consumers were selected and they record everything purchased in the product category during the period of test marketing. They record several prices of information, like, price, quantity purchase, size, favour, brand, SKU, name of the outlet, date of purchase entry and so on. The company gathers the recorded information periodically. However, it is important to consider the learning effects that would take place among the panel members. As the consumers start accounting their purchases seriously, they may start behaving differently. Analyzing Test Marketing Data As mentioned in the beginning of this unit, the main objective is to estimate the market share and sales. One way of getting market share estimate is through direct calculation from survey and panel data. Estimating steady state sales would require more time. If the trial and repeat rates are available, long-run market shares can be estimated. As in the case of concept testing and product testing, the diagnostic information would help in refining the marketing strategies employed in the experiment. Activity 2 Test marketing is time consuming and expensive. What are the appropriate conditions for a ‘go’ decision to test market. ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... ......................................................................................................................................... 39 Protest Marketing and Test marketing 17.8 SUMMARY Test marketing is expensive and time-consuming process. Quantitative model based new product evaluation models have been developed to judge the product acceptance and suggest modifications before test marketing. There are several models, like ASSESSOR, BASES, NEWS, TRACKER etc. for this purpose. This group of models is based on simulated marketing experiments. These models are called pretest- marketing models. Important new product decision taken based on PTM is whether to go to market directly, or through test markets. The second set of decisions is related to product modifications based on the diagnostic information generated during the simulated test markets. However, certain variables can not be evaluated in PTM also, like distribution response, and sales promotion impact etc. To evaluate these variables invariably marketers use test markets. 17.9 SELF-ASSESSMENT QUESTIONS 1). Discuss and bring out the essence from the models of pretest marketing avavilable to the Indian marketer. 2). Distinguish the terms pretest marketing and test marketing. When do you think these concepts are relevant to the marketer. 3). Does your company test market? Why? What has been its experiences? List the products/services test marketed and major findings therein. 4). What is the rationale for test marketing. Discuss situations where you think test marketing is not desirable. 17.10 FURTHER READINGS Crawford M C, New Products Management, Irwin, Chicago 1997. Kotler P Marketing Management: Analysis, Planning, 1mplementation, and Control, Prentice Hall Pub Co, New Delhi 1997. Liken 1, G and Rangaswamy A, Marketing Engineering: Computer Assisted Marketing Analysis and Planning, Addison-Wesley, New York 1998. Moore W L and Pessemier E A, Product Planning and Management: Designing and Delivering Value, McGraw-Hill, Inc. New Delhi 1993. Ubran G L, and Hauser J R, Design and Marketing of New Products (2nd Ed.), Prentice-Hall, New Jersey, 1993. Wind Y J, Product Policy: Concepts, Methods, and Strategy, Addison-Wesley Pub Co. London 1982.