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Business is all about customers and everything in marketing revolves around them. According to a study conducted by Oracle, the average attention span of a person is 8 seconds. (4) This means that a business gets only eight seconds to grab its attention and make an impression.
Test marketing is an opportunity for a business to test run their product before the actual launch. It allows businesses to gather positive and negative feedback to make improvements to the product.
In this article, we will discuss test marketing with examples along with the types of the test market, its advantages, disadvantages, steps to implement test markets, and the recent developments in test marketing.
What is Test Marketing?
Test marketing is a strategy used by businesses to evaluate the viability of a new product in a controlled environment. It offers businesses an opportunity to learn, adapt, and refine their products before launching them on a larger scale. Companies generally test market their products without the customer's knowledge as it allows them to gather non-biased data.
The goal of test marketing is to determine consumer needs and whether the product meets the demand. It helps businesses find the strength and limitations of the product based on consumer feedback and structure the marketing strategy accordingly.
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Test Marketing: Example
We see test marketing everywhere. It’s in the retail stores where companies are offering free samples of their products mainly food items, cosmetics, and perfumes. Their goal is to collect customer feedback and use the data to analyze how the product will be received in the market.
An example of test marketing is Coca-Cola tying up with Grofers – a grocery delivery app to test market their Sprite Zero – a low-calorie version of Sprite. Here’s another example of test marketing by the popular fast-food restaurant chain – Wendy’s. Before launching their Black Label Burger mainstream, they test-marketed the product in Columbia, Ohio. Due to the presence of dozens of colleges including the Ohio State University, Ohio State has an international presence and is considered the test market of the USA. (1)
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Types of Test Marketing
Consumer Goods Test Market
The consumer goods test market spells out all goods that are used directly by the consumers. The purpose of the tests is to know the consumer’s behavior towards the product and gather valuable feedback. The company testing the product usually takes customers through the entire testing flow:
Trial → Repeat → Adoption → Purchase
Trial: whether the consumer tried the product at least one time.
Repeat: whether the consumer purchases the product a second time (after trial).
Adoption: whether the consumer likes the product enough to repurchase.
Purchase: how often will the consumer purchase the product.
There are four types of consumer good test marketing techniques that can be used to gather feedback.
Sales Wave Market Test
The sales wave market test determines a product’s potential to be consumed or accepted each time it’s offered to a consumer. During the course of this research, free samples are often distributed to the consumers to analyze whether they will accept them. That includes samples of perfumes, lipsticks, and other amenities that are offered to the existing customers when they buy something.
Simulated Market Test
A simulated market test determines the consumer’s preference to select and purchase a certain product. In this type of research, a group of people are invited to a store and offered exclusive discounts on certain product categories. In the store, the product they are testing for is placed alongside competitor/old products to see if the consumer picks the new product when offered alongside alternatives.
In simulated testing, free product samples are distributed first to get the consumers acquainted with the product. After testing the product, they’re asked a question about it. We often see this in departmental stores where new and old products are placed together to track consumer behavior.
Controlled Market Test
A controlled market test is generally conducted in chain stores with the product’s initial launch. In this test, the new products offered by the brand are introduced with a sales pitch, advertising banner, or test presentation to attract consumers.
The controlled market test is different from a simulated market test as the products are not distributed free of cost. It makes use of advertisement to attract potential consumers cutting the cost of free products while increasing product sales.
Standard Market Test
Most marketing researchers have established relationships among metrics such as promotional expenditures, trials, awareness, and repeat purchases. They use these metrics in mathematical simulations to make market share predictions. These predictions are used as inputs on the profit plans that estimate the payout period.
Industrial Goods Test Market
Industrial goods are goods that are further used to manufacture other products. In the industrial goods market, two types of tests are used to collect feedback about products or services.
Alpha Testing
Alpha testing is a cost-effective method of collecting initial feedback about a product. In this type of testing, the product manufacturer distributes prototypes within their own company and asks the employees for feedback.
Mostly, the tech companies use alpha tests before they start the beta testing phase. Companies like Apple and Samsung let their employees test their latest gadgets. This allows the companies to gather honest, in-house feedback before the product is released into the market.
Beta Testing
Beta testing is performed with consumers from outside the company. It’s mostly conducted at events or shows where there are real-world consumers are present. This way, companies can gather real-world data with the lowest costs.
A/B Test Market
A/B testing also known as the marketing effectiveness test compares two versions of something to determine the effectiveness of each version. While it’s mainly used in digital marketing these days, the method goes back about 100 years. (2)
Digital marketers often use A/B testing while running campaigns on Google Ads, Facebook Ads, etc. They use various CTAs (call to action), visuals, and other audience targeting techniques to determine which one brings the most value at the lowest ROI (return on investment).
In A/B testing, set A of testers is exposed to one advertisement and set B is exposed to another. It generally does not involve consumers directly and the analysis is done on the basis of engagement, click-through rates, and purchase rates.
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6 Steps to Implement a Test Market
Step 1: Select the Right Market Segment
The first step in implementing a test market is selecting the right market segment. The test results will change completely and will be completely unreliable if the audience is biased for any reason. You need to select an audience that represents your entire market size and not just a sample of the market. The demographics, platforms, or cities where your business is already blooming generally turn out to be a good fit.
Step 2: Set the Test Duration
Since test marketing is generally a long process, it’s important to set a duration for your campaign. You can set the duration based on the state of your competition and the repurchasing period. The duration you set for the test should be at least two months longer than the repurchasing period.
Step 3: Consider the Cost of the Test
A long and time-consuming process usually means higher costs. The cost of the test market is directly proportional to the test duration. To set up a budget, you need to consider the cost per acquisition and test duration.
Step 4: Data Collection
Once you’ve completed the planning phase, you move on to the second phase – data collection. In test marketing, we are doing everything to collect authentic and credible data. This is why you need to have a structured data collection system in place. The most important data points to measure include:
After data collection comes data analysis. Data in itself isn’t worth much. It’s what you make of it that matters. British economist Ronald Coase said:
“If you torture the data long enough, it will confess” — Ronald Coase
Data analysis has the potential to help business devise their next big strategic move. (3) To make the most out of the data, start by cleaning and turning it into visualizations. Even data scientists have a hard time reading data, but anyone can read what the data shows in a visualization.
Step 6: Product Launch
At the end of the line comes the big day – product launch. If the test marketing campaign fails, then the brand needs to find the reasons for failure, reevaluate, and plan accordingly. In case of a successful campaign, you can launch with confidence that you’re on the right track.
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Advantages of Test Marketing
Real-world Testing
Test marketing offers an excellent way to test the product in a real-world setting. It can highlight potential issues with the product and predict how things will work out in the future.
On the other hand, since it’s a test run, businesses can identify any weakness within the product without any disastrous outcomes. They can make improvements during the test run so it can work better in the market.
Eliminates the Risk of a Full-scale Launch
Test marketing is expensive, but more so is a risky launch especially if you’re solving a new problem or your product is unique. The test launch can help you identify weaknesses and problems without having them become a massive problem.
The business can simply collect data from the consumers and make changes according to the given feedback. If there’s a major defect, immediate recalls can be done. Recalling from a test audience is much safer than taking a risk with the actual consumer.
Generates Product Identity
Market testing gives any product the time and space it needs to find its audience. Initially, marketers and advertisers work to create awareness and increase product exposure. However, a great product sells itself.
Competitive Advantage
Test campaigns are generally expensive and not very common in most industries. Conducting a market test gives your organization an opportunity to get the perspective of its potential consumers. Knowing what the consumer wants gives them a competitive advantage. Although, handing out too many free samples can also hurt your brand, indirectly. People will always expect free products and won’t want to pay for them.
Customer Feedback
Customer is always the most important part of any business. The idea behind market testing is to collect feedback about a product and improve and refine it to meet consumer needs. Although, it is not a one-time process. Consumer needs and preferences will change over time, and the company will have to adjust and make changes accordingly.
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Disadvantages of Test Marketing
Expensive
The biggest drawback of test marketing is the cost. To cost incurred in creating and conducting the test markets can be massive. In fact, it can often turn out to be more expensive than you think. Before diving deep, it’s important to analyze the cost and profit ratio.
Long and Time-consuming
Apart from being expensive, test marketing is also a long, tedious, and time-consuming process. The time it takes to test market a product varies with the organization, but it usually takes anywhere from six months to two years. Creating a setup that includes product price promotion and supply chain management requires a lot of time, planning, and resources.
Risk of Losing the Competitive Advantage
When it comes to launching a new product, companies tend to be extremely secretive especially if the product is unique. That's because if a competitor gets the scent of your product while you’re in the test marketing phase, they can develop a better version of it. During test marketing, the companies often end up revealing their product, its features, and marketing strategy to the competitor and lose their competitive advantage.
Inconclusive or Misleading Results
The results of test marketing are not always predictable and even if they are, they don't necessarily predict success. Products that sell very well in local markets can end up being a total loser in other geographical locations. Sometimes, the consumer in one part of the country is too loyal to a certain brand.
On the other hand, it’s possible that the data you collected from test marketing ends up being biased or inaccurate. This happens especially if the testing group is too small. If that happens, businesses end up with a one-dimensional view of the market which does not exactly reflect the reality.
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Recent Developments in Test Marketing
The cost of test marketing is huge – both direct and indirect. Since it’s not cost-efficient, researchers have been looking for methods that circumvent the procedure. Two recent developments are laboratory and mathematical simulation models.
Laboratory Simulation
In laboratory simulation, a sample of consumers are shown various commercials and are led to assimilated supermarket environment to shop. Prior to the test simulation, researchers generally obtain data regarding demographics, economic, and brand preferences of the consumer sample.
After completing the simulation, researchers do a follow-up interview once the consumer has used the product. It helps them measure customer satisfaction and whether the consumer intends to repurchase. The data is later fed into different mathematical models that predict market share.
There can be three outcomes of laboratory simulation:
The product is immediately suspended.
In case of favorable results, the marketers go directly for a regional rollout.
Laboratory simulation is followed by a market test to measure the productivity of the marketing plan.
Mathematical Market Simulation
Most marketing researchers have established relationships among metrics such as promotional expenditures, trials, awareness, and repeat purchases. They use these metrics in mathematical simulations to make market share predictions. These predictions are used as inputs on the profit plans that estimate the payout period.
Firstly, the simulation models are used to develop ab initial payout estimate. The inputs to the models at this stage are executive judgments which are replaced with product-test data in the next estimate of the payout period. The estimate can later be revised using the simulation model with data from the extended communication tests and product-use tests.
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Conclusion
Test marketing offers businesses a way to market their product to consumers and gather their feedback. There are many ways that you can test market your product but at the end of the day, what matters most is what you make of the data.
Not everyone can gather intelligent insights from data and that's where the experts at Starlight Analytics come in. We offer consumer research services that help companies test and refine their product ideas, gauge consumers' true willingness to pay for features and benefits, and help identify the consumer's unmet product needs.
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