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How do you determine the right price point for a product? It can be a tricky process. If you price your product too low, you leave money on the table. If you price it too high, you alienate your customer base and risk losing sales. You need to be able to gauge demand, discern price sensitivity, and figure out what price point actually helps you profit. The pricing strategy also differs between physical and digital goods.

And because price matters so much to consumers, it’s important to get it right. So how do you determine the right price that helps your business grow without losing valuable market share? That’s where price testing can help.

What is price testing?

Price testing is a straightforward concept: you conduct a test to determine the ideal price for a good or service. Price testing can give you insight into what you should charge consumers and can show you how actual customers respond to different pricing. It also helps you measure demand elasticity.

What is demand elasticity?

Demand elasticity is a measure of how product consumption changes in relation to a price change. Measuring demand elasticity helps you understand how supply and demand for a product change when its price changes.

Once you can measure that, you can set prices that satisfy consumer expectations and your own business goals.

Why should you conduct a product pricing test?

Price testing allows you to set accurate price points that maximize profit without alienating the majority of your customers. It’s especially helpful when you have to price a new product that you don’t have sales data for.

Generally speaking, as prices increase, demand decreases. However, that doesn’t mean you should price your product as low as possible. There’s a “sweet spot” that your product will fall into, and running pricing tests can help you define that price range.

How to conduct a price test

Before you can dial in on your pricing and conduct a price test, you’ll need to decide a few things first:

●    What are your goals? Are you trying to grow profit margins, top-line revenue, or market share for a new product?

●    What product category will you conduct the test in?

●    What product or service will you be running the test on?

You’ll also need to decide which product pricing test method you’ll use.

Price testing methods

There are a variety of testing methods you can use to conduct a price test, but here are a few of the more common methods:

1. A/B test

In an A/B price test, you run a test with two different prices and see which drives the best results. It’s generally recommended not to run an A/B price test with the same product, because it’s unfair to offer a product to one person for less than you offer it to another. This strategy can damage your brand reputation if executed poorly. We’ll share a few tips for running successful A/B price tests in a later section.

2. Cost-plus pricing

If you’d like to test pricing but aren’t sure what dollar amount to test, the cost-plus pricing method is pretty straightforward. You calculate all the costs, fixed and variable, that are incurred in the manufacturing process and then apply a markup percentage to these costs to generate the asking price. Many retailers and ecommerce companies utilize this pricing strategy to ensure they're pricing their goods at a rate that will guarantee a profit.

3. Direct pricing research

The direct pricing research technique involves surveying a group of consumers and directly asking them what they’d be willing to pay for a good or service. It essentially measures the value your customer places on your product or service. The researcher will change the price throughout the course of the survey and continue asking respondents whether or not they’d purchase the product for that price. For example, if you’re developing a newline of skincare products, you might start by asking if consumers would be willing to spend $15 on a bottle of face serum, and then increase that by $5 increments until you hit a price cap.

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How to build a price testing framework

Now that you’re familiar with the core elements of a price test, you can put together a framework that will help you plan out your own price test. Here are a sample framework for running your own price test:

1. Set your goals. Determine what you’d like to accomplish with your price test and make sure all stakeholders are on board.
2. Choose a product category. If you sell multiple products that fall into multiple categories, select which category you’ll test first and then select which products you’ll test within each category.
3. Pick a testing method. How will you choose and test your new price? Refer to the methods outlined above to pick a method that works best for your goals.
4. Collect data. Make sure you collect enough data to draw meaningful results. You’ll need a high volume of data to validate making any formal pricing decisions.
5. Analyze your results. Is your revenue or profit increasing or decreasing since implementing a price change? What changes have you seen since the change? Compare your sales and revenue before and after implementing the change to measure and analyze your results.

Tips for running an A/B price test

As we mentioned above, A/B price tests are sometimes advised against because they can have a negative impact on your brand if executed poorly. However, when executed properly, they can be incredibly beneficial tools to collect valuable insights on your products and pricing.

Here are some tips for running an A/B price testing strategy that won’t put you at risk of frustrating your customers:

• Test different products within the same category: As noted above, it’s unfair to ask customers to pay two different prices for the same exact product—eventually, they’ll catch on that there’s an unexplained price discrepancy. Instead, you can test two different products within the same category to see how much people are willing to spend.
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  Here’s an example: Let’s say you own a boutique fitness studio and you’re trying to figure out what to charge for your monthly membership. You can create three membership tiers that are priced $50-100 apart and offer extra perks as the membership price increases. In doing so, you’ll find out just how much people are willing to pay for your studio (as long as certain perks are included).

•  Determine what price points you want to test: Even as you’re comparing two separate products, you can still adjust their prices, as long as you’re keeping the price for each product the same for every customer. That can help you find the right price range for each offering that drives maximum profit without a dramatic drop in sales.
•    Choose your winner based on revenue, not conversions: If you price an item lower and see an increase in sales, you’ll still generate less revenue than if you’d priced the product higher and maintained the same level in sales. Choose the winner of your A/B test based on overall revenue generated, not the conversion data.

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Common mistakes in price testing

Price tests can be tricky, but these common mistakes can damage the integrity of your data collection efforts:

• Failing to isolate variables appropriately: Make sure to isolate the variables you want to test and eliminate the risk of any other factors affecting your data. For example, don’t test pricing for new products at the same time as a major marketing campaign. You won’t be able to determine if the additional sales or revenue came from the price change or the marketing efforts.
• Measuring conversion, not revenue: It’s worth repeating, so we’ll include it here again. Choose the winner of your A/B test based on overall revenue generated, not the conversion data. Because even if sales drop when you raise prices, your overall revenue might be higher.
• Not collecting enough data: If you don’t have a large enough sample size or volume of data, your results won’t be statistically significant, and you probably shouldn’t make any huge decisions based on your results.  
• Not doing competitive research: You don’t always have to start from scratch when setting new price points. What prices are your competitors offering consumers? Can you match those prices? Would your competitor steal market share away from you if you raise your prices past a certain point?

Successful price tests require constant iteration and consistent tracking. By experimenting regularly, you’ll be able to find the right price point for every product you offer, so you can better support your customers and meet your own business goals.

Don’t leave money on the table

Price tests can be tricky and time-consuming, and when it comes to pricing your products or services, it’s worth getting right the first time. The experts at Starlight Analytics specialize in direct pricing research and can help you measure your target consumer’s true willingness to pay for your product. With our proven price testing methods, you’ll gain insight into overall purchase intent, optimal price ranges, drivers of price sensitivity, and buyer demographics.

Contact Starlight Analytics today to learn more about our direct research methods and how we can help you find the right price for your product.

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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.

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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.

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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.

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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.

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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.

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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:

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Trial → Repeat → Adoption → Purchase

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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.

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There are four types of consumer good test marketing techniques that can be used to gather feedback.

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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.  

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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:

• Customer persona
• Consumer behavior (including the decision making process)
• Channels of distribution
• Product demand
• Purchasing power
• Consumer feedback

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Step 5: Data Analysis

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:

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“If you torture the data long enough, it will confess” — Ronald Coase

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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There can be three outcomes of laboratory simulation:

1. The product is immediately suspended.
2. In case of favorable results, the marketers go directly for a regional rollout.
3. 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.

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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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Sources

1. https://www.cbsnews.com/news/columbus-ohio-test-market-of-the-usa/

2. https://hbr.org/2017/06/a-refresher-on-ab-testing

3. https://hbr.org/sponsored/2021/03/embracing-data-analytics-for-more-strategic-value

4. https://blogs.oracle.com/advertising/post/visions-for-2020-key-trends-shaping-the-digital-marketing-landscape

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Have you ever seen your parent's old VHS tapes or your brother's CD collection and wondered why they have it when everything is just one click away? Every such instance is an example of the product life cycle.

Every time a product enters the market, it has a lifecycle that carries it from young and useful to old and retired. Most products eventually go obsolete but no one wants that for their product. It's important to understand which stage your product is in for better marketing and strategizing.

In this article, we will discuss the product life cycle including its stages, how it works, and its examples. We will also see how it differs from the BCG matrix.

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What is the Product Life Cycle?

The product life cycle (PLC) is the process through which a product is developed, goes into the market, and is ultimately removed. Generally, there are five stages in the product life cycle — development, introduction, growth, maturity, and decline.

The concept of the product life cycle was introduced in 1965 by a German economist — Theodore Levitt. He worked at the renowned Harvard Business School and published his product life cycle model in an article in the Harvard Business Review (1). He pointed out that while product life cycle is a widely-known concept, it was hardly used tactically. In his article — exploit the product life cycle, he said:

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“The concept of the product life cycle is today at about the stage that the Copernican view of the universe was 300 years ago: a lot of people knew about it, but hardly anybody seemed to use it in any effective or productive way.”

— Theodore Levitt, 1965

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Product Lifecycle Stages

Stage 1: Development

The development phase of the product life cycle is where the product journey begins. Before the product even hits the market and generates revenue, companies spend a tremendous amount of money on market research and a product development strategy.

Product development starts with refining the concept, product testing, and designing a launch strategy. Product concept testing at this stage can help you know the consumer’s reaction to the product and gain first-hand feedback.

Companies bring in investors, develop prototypes, test the product's effectiveness, and strategize launch. The goal is to develop a prototype or a product sketch to show potential investors and customers.

The length of the development stage can vary depending on the complexity of the product. For a new product, this stage is usually longer as pioneering a product is more difficult than improving further iterations.

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Stage 2: Introduction

The introduction stage of a product is when it’s first launched in a marketplace. It’s a critical time in the product life cycle but your product’s success is not entirely dependent on this.

During this stage, the marketing team is focused on creating awareness about the product to reach the target audience. Most companies spend a great amount of capital on product promotion. When you first launch a product, the stakes and costs are both high as you try to make your place in the market.

An example of product promotion before launch is Apple’s famous launch presentation, which has remained an essential part of its brand for over 20 years. The keynote announces and highlights the new features of their newly-released (or soon-to-be-released) products. After the initial launch, you can use inbound and content marketing to promote the product further.

The length of the introduction stage depends on various factors such as customer needs, product competition, product complexity, and the novelty of the product idea. Launching a new product is generally more difficult than innovating on an old product, which is why many new products fail at the introductory stage. Although, with a great idea and proper execution, you can confidently launch a new product.

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Stage 3: Growth

The growth stage of a product starts when the product has made its place in the market and consumers have embraced it. Sales generally increase and the business starts generating revenue. The demand for the product and profit is growing at a steady pace and more and more competitors are entering the market.

Marketing at this stage is as critical as the introduction stage. However, it will be focused more on establishing a brand identity and increasing the product’s market share than trying to grab customer attention. The focus is on showing customers why they should choose your brand over the competitors.

The next important part of growth is expanding. That includes adding new features to your product/service, improving support, and opening new distribution channels. Since competitors will also be entering the market with a similar or improved product, you need to maintain quality while refining the product.

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Stage 4: Maturity

The fourth stage of the product life cycle is maturity. It’s when the product is at its peak — the highest point during the PLC. Though you may not be growing rapidly, the production costs will probably decline and sales will stabilize.

During the maturity stage, market saturation may occur and you will run out of growth opportunities. Competitors may have taken a portion of the market and many consumers are using their product instead of yours. The challenge now is to maintain the product’s market position over time and take certain measures to avoid any significant setbacks.

Now that the product has matured, you may be tempted to sit back and relax, but money never sleeps, and neither should you. None of the famous brands got where they are by sitting back.

Take the example of Coca-Cola. Even though they don’t depend on marketing, they don’t leave the media. They know that brands aren’t forever and however popular you are among consumers, you’re always subject to behavioral changes in consumers and market instabilities.

Marketing efforts at this stage are focused mainly on highlighting product individuality instead of creating awareness. If you don’t keep up, you will probably enter the decline stage of the product life cycle.

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Stage 5: Decline

When a mature product loses customer interest and its sales start drifting downward, it has entered the decline stage of the product life cycle. Not all products necessarily face a decline stage. Companies can stay afloat by having multiple products at various points of the product life cycle. Generally, product sales decrease in the face of rising competition and eventually lead to product decline.

The most common reasons for market decline include:

• Too much competition can often drive a product to decline. The only way to avoid it is by standing out from the crowd and highlighting the individual features of your product. Not adapting to the time is how Facebook led to the downfall of MySpace in the social media market.
• Outdated products are another reason for a market decline. If you have a product that is no longer marketable then let it go. It's common for even the most popular products to go into decline because there's a better option in the market. For example, the arrival of DVDs led to the decline of VHS tapes and streaming services did the same thing to DVDs.
• Even if you're doing everything right, the loss of customer interest can lead the product to decline. An example of customers losing interest is when Heinz introduced the EZ Squirt colorful ketchup in 2000. Initially, it was a huge success but the product failed as the novelty wore off over time.
• Damaged brand image can also lead to a market decline. Mcdonald’s faced this issue when a documentary by Morgan Spurlock — ‘Super Size Me’ showed how the fast food chain’s food affects the health of an average person.

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Even though the market decline is often inevitable, there is still much you can do about it. For example, when you notice the decline, your marketing team can foster nostalgia around the product to highlight its superiority over the competitors. You can also discontinue the product, innovate the product, or sell the company that owns the product.

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Product Life Cycle Examples

Product Life Cycle of Coca-Cola

Coca-Cola requires no introduction. It's one of the most popular beverages in the world. Let's take a look at the product life cycle of Coca-Cola and how it went through various product life cycle stages.

• Development: there's little known about how the company developed the mysterious formula.
• Introduction: the first glass of Coca-Cola was sold by Dr. John Pamberton in 1886.
• Growth: within 10 years of launch, Coca-Cola was consumed in all states of the U.S.
• Maturity: it's hard to say when Coca-Cola became a mature product but we can safely say that it is considered a mature product up until now. The Coca-Cola Company continues to invest in marketing and launching new products.
• Decline: Coca-cola's net operating revenue fluctuated towards a decrease in 2012 but a small decrease is expected in the maturity stage.

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Product Life Cycle of The Typewriter

The typewriter was the grandfather of the keyboards still known for the mechanical sound that its keys used to make. Despite being a worthy successor to pen and paper, the typewriter was ultimately replaced by other technologies

• Development: the idea of a typewriter has been around since 1575, centuries before the first commercial typewriter was introduced.
• Introduction: the first commercial typewriter was introduced in the late 1800s.the late 1800s.
• Growth: the typewriter quickly gained popularity and became indispensable everywhere from offices to private homes.
• Maturity: for nearly 80 years, typewriters were the tool of choice for typing. After the invention of computers in the 1990s, typewriters faced fierce competition.
• Decline: the typewriter couldn’t compete with the latest technology and eventually became obsolete.

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Product Life Cycle of a Floppy Disk

Before the era of CDs and DVDs, floppy disks were used to store and share data between computers.

• Development: the first floppy disk — an 8-inch flexible magnetic disk was developed by IBM in 1970. It was square-shaped and could store up to 2 MBs of data.
• Introduction: introduced in 1971, the floppy disk was soon considered the only way to store or transfer data.
• Growth: between 1980 to 1990, the floppy disk became indispensable among computer users.
• Maturity: the floppy disk improved over time (holding up to 200 MB of data) and sold well in the markets during the 1990s. At the beginning of the 21st century, the invention of USB cables and external hard drives made it obsolete.
• Decline: Hewlett-Packard stopped the production of floppy disks in 2009, leading to a major decline.

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Product Life Cycle of Cable TV

If you’re a 90s kid (or older), then you probably remember the days of switching TV channels to find something to watch. While cable TV may seem like something archaic in front of Netflix and Hulu, there are still many who still use it.

• Development: in the first half of the twentieth century, cable TV was developed by John Walson.
• Introduction: the first commercial TV was introduced in 1950.
• Growth: cable TV saw the first hints of success in 1962, and began gaining traction after a long freeze on its development due to regulatory restrictions. By 1980, over 15 million households had cable.
• Maturity: nearly seven in tn households had cable as cable TV matured in the 1990s.
• Decline: the development of on-demand services and high-definition TV (HDTV) led to the saturation of cable TV at the beginning of the 21st century. It faced a major decline after streaming services like Netflix and Hulu gained popularity.

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Product Life Cycle of Electric Vehicles (EV)

Global warming and climate change are no longer the issues of tomorrow, and electric vehicles are one way to bring change. While EVs are generally expensive as compared to gasoline cars, they also leave a smaller carbon footprint. (3)

• Development: it’s difficult to pinpoint the invention of electric cars to a specific inventor, but the first electric car was introduced in the 1800s.
• Introduction: many inventors in different countries worked on electric cars, and the first EV was built in the second half of the 19th century.
• Growth: Currently, EVs are in the growth stage as companies work towards pushing them into the marketplace while making continuous improvements.
• Maturity and decline: EVs have not yet entered the maturity or decline stage.

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Product Life Cycle Vs. BCG Matrix

The product life cycle and BCG matrix are similar concepts but relate to different aspects of a product’s performance. (2)The BCG matrix dots down market share and market growth to see how a certain product impacts cash usage and generation. The product life cycle uses sales/revenues and profitability over time.

Named after the initials of the Boston Consulting Group, the BCG matrix AKA growth share matrix includes four stages — Question Mark, Star, Cash Cow, and Dog.

Question marks are products that do not have a market yet but have great growth potential. Stars are top products that generate substantial revenue. Cash cows are the future of stars, i.e. products that have matured and are entering the decline stage. Finally, dogs are the problem products that do not sell well (or generate revenue) and are unlikely to recover.

To put it simply, question marks and stars are products that have the potential to grow and demand marketing investment. Cash cows are close to going obsolete and you must not invest money in them. Dogs won’t recover even with substantial investment.

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How to Get Started with the Product Life Cycle?

Marketers use the product life cycle to customize their marketing efforts for each stage by conducting market research. Managers use the product life cycle to strategize decisions regarding price, packaging, design, market expansion, etc. If you want to use the product life cycle, start by conducting thorough market research and then move towards development.

To start your journey with the product life cycle, Starlight Analytics offers solutions to help you validate your ideas, price your product, and innovate. The tools help you refine your idea and understand the needs of your potential customer.

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Sources

1. https://hbr.org/1965/11/exploit-the-product-life-cycle
2. https://www.bcg.com/about/overview/our-history/growth-share-matrix
3. https://www.epa.gov/greenvehicles/electric-vehicle-myths

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Before launching a brand new company, expanding into a new vertical, or launching a new product or service, there’s one very important first step you’ll likely take: determining your market potential. After all, determining your market potential tells you what the market is worth, which helps you decide whether or not your new venture is worth the investment.

Determining market potential involves a few factors, but there’s one specific factor that’s often either misunderstood, miscalculated, or misused. That factor is your Total Addressable Market—frequently referred to as your TAM.

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What Does Total Addressable Market (TAM) Mean?

TAM is a market sizing analysis that helps you define the total revenue potential of your current (or future) set of products and services. Measuring your TAM gives you the full picture of what your total available market and landscape looks like (simply put: how many clients or customers could you possibly sell to?).

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Why is Defining Your Total Addressable Market (TAM) Important?

Defining your TAM helps you implement more effective, data-driven, and dynamic targeting built on data that you can take action on immediately. Your total addressable market is also a critical data point when trying to determine how much effort you can invest into a new business venture. With this data, you can better prioritize your product roadmap, marketing efforts, and future business goals.

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What Are SAM and SOM? How Are TAM, SAM, and SOM Different?

As described above, your total addressable market is the total number of customers that could buy your product or service. If you were launching a new line of modern workwear essentials, your TAM would include any person that could ever possibly buy, say, a button-up blouse. However, just because someone could buy your product doesn’t mean you should invest valuable time and resources in marketing to them.

Let’s face it: most companies can’t possibly capture the entire addressable market for their products or services. There will always be at least one, if not many, competitor(s) trying to capture the same market share. Plus, you likely won't have the resources at your disposal needed to handle that volume of output. ​​

For that reason, it’s unrealistic to set your TAM revenue potential as your actual revenue goal. That’s where SAM and SOM come into play.

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What is SAM (Service Available Market)?

SAM stands for Service Available Market. SAM is a subset of your TAM that caters to different types of customers based on factors like:

• Geographic data
• Demographic data
• Differences in product/service pricing, quality, or functionality

To build off of our earlier example, your total addressable market for your new line of modern workwear essentials would include any person that could ever possibly buy workwear. Your SAM, however, would carve out a segment of that huge audience and factor in the fact that the majority of your clothing is for women, it’s priced above the norm, it’s made with mid-to-high-quality sustainable materials. You wouldn’t want to advertise to the segment of the market that solely buys low-quality, fast fashion apparel, so those consumers aren’t included in your SAM. Instead, your SAM would likely consist of higher-income consumers, most of whom are women, who likely live in a more urban area and care about the environment.

What is SOM (Serviceable Obtainable Market)?

SOM stands for Serviceable Obtainable Market. It’s an even smaller subset of your SAM and TAM that tells you much of your market you can realistically capture in the near- to mid-term. Your SOM layers in additional factors like your competitive dynamics and current resources to give you a better idea of how many customers you could realistically win.

Once you know your SAM, you can analyze the data and your own resources to figure out what bandwidth you have for targeting that market. You can determine which, and how many, geographic locations you’d like to launch in. You can measure how much market share your competitors hold and find out what market share you think you could potentially grab for yourself. Once you’ve defined those high-priority markets and profiles, you can calculate your SOM.

Referring back to the workwear example, you could determine that you want to open pop-up shops in three major hubs: New York City, Chicago, and Atlanta. You can then calculate the revenue potential of each hub and add them together for your initial SOM. Over time, your SOM could grow as you expand your business.

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How to Calculate Total Addressable Market (TAM)

But before you can calculate your SAM or SOM, you need to figure out your total addressable market. There are a few common ways to calculate your total addressable market:

1. Top-Down Approach

The top-down approach to calculating your TAM uses third-party data, market reports, and consumer studies within your industry to calculate the size of your market potential.

Depending on the size of your industry, you may consult companies like Nielsen, Gartner, or Forrester to get accurate market size calculation data. The risk of using the top-down approach is that you’re relying on data that may be out of date, and likely does not fully reflect the nuances of your business. In some situations, it may be more effective to work with a firm that can help you generate up-to-date data that takes into consideration your unique business needs.

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2. Bottom-Up Approach

The bottom-up TAM calculation is a fairly simple math equation.

Annual Contract Value (ACV) * number of customers for the entire segment of the targeted market

Your ACV is calculated by multiplying your average sales price by your number of current customers. Let’s look at an example:

You own a fragrance company that distributes your fragrance products to beauty supply stores in your state. Your product costs an average of $95/bottle, and you sell an average of 100 bottles to each store. 100 * $95 gives you an ACV of $9,500. You’d then multiply your ACV by the total number of beauty supply stores in your state (150) for a Total Addressable Market of $1,425,000.  

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3. Value-Theory Approach

The value-theory approach requires you to determine how much value a consumer does (or will) receive from your product and determine how much they’d be willing to pay for that product/service in the future. If you’re manufacturing a new product, you’d identify the value-theory by estimating how much your customer would be willing to pay for it.

Product price testing is a helpful, data-driven method to discern price sensitivity and determine the ideal price for a good or service. You can use price tests to calculate how much consumers are willing to pay for your product/service, and then use that data to more accurately calculate your TAM with the value-theory approach. After all, let’s say you’re wavering between charging $10 per unit or $15 per unit. To a consumer, it may not seem like a huge amount, but depending on which unit price you use during your calculations and the size of your target market, you could end up with wildly different TAM estimates.

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Find Your TAM First—Then Focus On Your Opportunity

By defining and segmenting your market appropriately, you can better organize and prioritize your marketing and development efforts. Finding your TAM is an essential first step to estimating the potential scale of your business. It helps you assess the market potential for a new product or service, so you can decide if it's worth the investment in the first place. Once you find your TAM, the rest of your consumer targeting efforts can start to fall into place.

Unlock your full market potential

Determining your TAM, SAM, and SOM can help you determine who to market to, when the best time to scale is, and where you have opportunities for additional growth. Finding and aligning on the right data for these analyses can be more difficult than it seems, especially if you don’t have a clear framework.

Starlight Analytics has a team of seasoned product experts that power winning products across all major industries. We’ll equip you with high-quality, easily digestible insights and actionable takeaways that are practical and considerate of your business strategy. We can even help you uncover product whitespace and new market opportunities by identifying unmet customer needs and emerging conversations.

Together, we’ll review the output and work to prioritize which ideas have the potential to influence your product roadmap. Want to learn more? Click here to share more about your goals and get started.

For decades, researchers and businesses have used survey research to produce statistical data and explore ideas. The survey process is simple, ask questions and analyze the responses to make decisions. Data is what makes the difference between a valid and invalid statement and as the American statistician, W. Edwards Deming said:

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“Without data, you’re just another person with an opinion.” - W. Edwards Deming

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In this article, we will discuss what survey research is, its brief history, types, common uses, benefits, and the step-by-step process of designing a survey.

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What is Survey Research

A survey is a research method that is used to collect data from a group of respondents in order to gain insights and information regarding a particular subject. It’s an excellent method to gather opinions and understand how and why people feel a certain way about different situations and contexts.

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Brief History of Survey Research

Survey research may have its roots in the American and English “social surveys” conducted around the turn of the 20th century. The surveys were mainly conducted by researchers and reformers to document the extent of social issues such as poverty. (1) Despite being a relatively young field to many scientific domains, survey research has experienced three stages of development (2):

-      First Era (1930-1960)

-      Second Era (1960-1990)

-      Third Era (1990 onwards)

Over the years, survey research adapted to the changing times and technologies. By exploiting the latest technologies, researchers can gain access to the right population from anywhere in the world, analyze the data like never before, and extract useful information.

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Survey Research Methods & Types

Survey research can be classified into seven categories based on objective, data sources, methodology, deployment method, and frequency of deployment.

Surveys based on Objective

Exploratory Survey Research

Exploratory survey research is aimed at diving deeper into research subjects and finding out more about their context. It’s important for marketing or business strategy and the focus is to discover ideas and insights instead of gathering statistical data.

Generally, exploratory survey research is composed of open-ended questions that allow respondents to express their thoughts and perspectives. The final responses present information from various sources that can lead to fresh initiatives.

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Predictive Survey Research

Predictive survey research is also called causal survey research. It’s preplanned, structured, and quantitative in nature. It’s often referred to as conclusive research as it tries to explain the cause-and-effect relationship between different variables. The objective is to understand which variables are causes and which are effects and the nature of the relationship between both variables.

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Descriptive Survey Research

Descriptive survey research is largely observational and is ideal for gathering numeric data. Due to its quantitative nature, it’s often compared to exploratory survey research. The difference between the two is that descriptive research is structured and pre-planned.

The idea behind descriptive research is to describe the mindset and opinion of a particular group of people on a given subject. The questions are every day multiple choices and users must choose from predefined categories. With predefined choices, you don’t get unique insights, rather, statistically inferable data.

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Survey Research Types based on Concept Testing

Monadic Concept Testing

Monadic testing is a survey research methodology in which the respondents are split into multiple groups and ask each group questions about a separate concept in isolation. Generally, monadic surveys are hyper-focused on a particular concept and shorter in duration. The important thing in monadic surveys is to avoid getting off-topic or exhausting the respondents with too many questions.

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Sequential Monadic Concept Testing

Another approach to monadic testing is sequential monadic testing. In sequential monadic surveys, groups of respondents are surveyed in isolation. However, instead of surveying three groups on three different concepts, the researchers survey the same groups of people on three distinct concepts one after another. In a sequential monadic survey, at least two topics are included (in random order), and the same questions are asked for each concept to eliminate bias.

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Based on Data Source

Primary Data

Data obtained directly from the source or target population is referred to as primary survey data. When it comes to primary data collection, researchers usually devise a set of questions and invite people with knowledge of the subject to respond. The main sources of primary data are interviews, questionnaires, surveys, and observation methods.

Compared to secondary data, primary data is gathered from first-hand sources and is more reliable. However, the process of primary data collection is both costly and time-consuming.

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Secondary Data

Survey research is generally used to collect first-hand information from a respondent. However, surveys can also be designed to collect and process secondary data. It’s collected from third-party sources or primary sources in the past.

This type of data is usually generic, readily available, and cheaper than primary data collection. Some common sources of secondary data are books, data collected from older surveys, online data, and data from government archives. Beware that you might compromise the validity of your findings if you end up with irrelevant or inflated data.

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Based on Research Method

Quantitative Research

Quantitative research is a popular research methodology that is used to collect numeric data in a systematic investigation. It’s frequently used in research contexts where statistical data is required, such as sciences or social sciences. Quantitative research methods include polls, systematic observations, and face-to-face interviews.

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Qualitative Research

Qualitative research is a research methodology where you collect non-numeric data from research participants. In this context, the participants are not restricted to a specific system and provide open-ended information. Some common qualitative research methods include focus groups, one-on-one interviews, observations, and case studies.

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Based on Deployment Method

Online Surveys

With technology advancing rapidly, the most popular method of survey research is an online survey. With the internet, you can not only reach a broader audience but also design and customize a survey and deploy it from anywhere. Online surveys have outperformed offline survey methods as they are less expensive and allow researchers to easily collect and analyze data from a large sample.

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Paper or Print Surveys

As the name suggests, paper or print surveys use the traditional paper and pencil approach to collect data. Before the invention of computers, paper surveys were the survey method of choice.

Though many would assume that surveys are no longer conducted on paper, it's still a reliable method of collecting information during field research and data collection. However, unlike online surveys, paper surveys are expensive and require extra human resources.

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Telephonic Surveys

Telephonic surveys are conducted over telephones where a researcher asks a series of questions to the respondent on the other end. Contacting respondents over a telephone requires less effort, human resources, and is less expensive.

What makes telephonic surveys debatable is that people are often reluctant in giving information over a phone call. Additionally, the success of such surveys depends largely on whether people are willing to invest their time on a phone call answering questions.

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One-on-one Surveys

One-on-one surveys also known as face-to-face surveys are interviews where the researcher and respondent. Interacting directly with the respondent introduces the human factor into the survey.

Face-to-face interviews are useful when the researcher wants to discuss something personal with the respondent. The response rates in such surveys are always higher as the interview is being conducted in person. However, these surveys are quite expensive and the success of these depends on the knowledge and experience of the researcher.

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Based on Distribution

Email

The easiest and most common way of conducting online surveys is sending out an email. Sending out surveys via emails has a higher response rate as your target audience already knows about your brand and is likely to engage.

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Buy Survey Responses

Purchasing survey responses also yields higher responses as the responders signed up for the survey. Businesses often purchase survey samples to conduct extensive research. Here, the target audience is often pre-screened to check if they're qualified to take part in the research.

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Embedding Survey on a Website

Embedding surveys on a website is another excellent way to collect information. It allows your website visitors to take part in a survey without ever leaving the website and can be done while a person is entering or exiting the website.

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Post the Survey on Social Media

Social media is an excellent medium to reach abroad range of audiences. You can publish your survey as a link on social media and people who are following the brand can take part and answer questions.

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Based on Frequency of Deployment

Cross-sectional Studies

Cross-sectional studies are administered to a small sample from a large population within a short period of time. This provides researchers a peek into what the respondents are thinking at a given time. The surveys are usually short, precise, and specific to a particular situation.

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Longitudinal Surveys

Longitudinal surveys are an extension of cross-sectional studies where researchers make an observation and collect data over extended periods of time. This type of survey can be further divided into three types:

-      Trend surveys are employed to allow researchers to understand the change in the thought process of the respondents over some time.

-      Panel surveys are administered to the same group of people over multiple years. These are usually expensive and researchers must stick to their panel to gather unbiased opinions.

-      In cohort surveys, researchers identify a specific category of people and regularly survey them. Unlike panel surveys, the same people do not need to take part over the years, but each individual must fall into the researcher’s primary interest category.

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Retrospective Survey

Retrospective surveys allow researchers to ask questions to gather data about past events and beliefs of the respondents. Since retrospective surveys also require years of data, they are similar to the longitudinal survey, except retrospective surveys are shorter and less expensive.

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Why Should You Conduct Research Surveys?

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“In God we trust. All others must bring data”
— W. Edwards Deming

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In the information age, survey research is of utmost importance and essential for understanding the opinion of your target population. Whether you’re launching a new product or conducting a social survey, the tool can be used to collect specific information from a defined set of respondents. The data collected via surveys can be further used by organizations to make informed decisions.

Furthermore, compared to other research methods, surveys are relatively inexpensive even if you’re giving out incentives. Compared to the older methods such as telephonic or paper surveys, online surveys have a smaller cost and the number of responses is higher.

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What makes surveys useful is that they describe the characteristics of a large population. With a larger sample size, you can rely on getting more accurate results. However, you also need honest and open answers for accurate results. Since surveys are also anonymous and the responses remain confidential, respondents provide candid and accurate answers.

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Common Uses of a Survey

Surveys are widely used in many sectors, but the most common uses of the survey research include:

-      Market research: surveying a potential market to understand customer needs, preferences, and market demand.

-      Customer Satisfaction: finding out your customer’s opinions about your services, products, or companies.

-      Social research: investigating the characteristics and experiences of various social groups.

-      Health research: collecting data about patients’ symptoms and treatments.

-      Politics: evaluating public opinion regarding policies and political parties.

-      Psychology: exploring personality traits, behaviors, and preferences.

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6 Steps to Conduct Survey Research

An organization, person, or company conducts a survey when they need the information to make a decision but have insufficient data on hand. Following are six simple steps that can help you design a great survey.

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Step 1: Objective of the Survey

The first step in survey research is defining an objective. The objective helps you define your target population and samples. The target population is the specific group of people you want to collect data from and since it’s rarely possible to survey the entire population, we target a specific sample from it. Defining a survey objective also benefits your respondents by helping them understand the reason behind the survey.

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Step 2: Number of Questions

The number of questions or the size of the survey depends on the survey objective. However, it’s important to ensure that there are no redundant queries and the questions are in a logical order. Rephrased and repeated questions in a survey are almost as frustrating as in real life. For a higher completion rate, keep the questionnaire small so that the respondents stay engaged to the very end. The ideal length of an interview is less than 15 minutes. (2)

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Step 3: Language and Voice of Questions

While designing a survey, you may feel compelled to use fancy language. However, remember that difficult language is associated with higher survey dropout rates. You need to speak to the respondent in a clear, concise, and neutral manner, and ask simple questions. If your survey respondents are bilingual, then adding an option to translate your questions into another language can also prove beneficial.

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Step 4: Type of Questions

In a survey, you can include any type of questions and even both closed-ended or open-ended questions. However, opt for the question types that are the easiest to understand for the respondents, and offer the most value. For example, compared to open-ended questions, people prefer to answer close-ended questions such as MCQs (multiple choice questions)and NPS (net promoter score) questions.

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Step 5: User Experience

Designing a great survey is about more than just questions. A lot of researchers underestimate the importance of user experience and how it affects their response and completion rates. An inconsistent, difficult-to-navigate survey with technical errors and poor color choice is unappealing for the respondents. Make sure that your survey is easy to navigate for everyone and if you’re using rating scales, they remain consistent throughout the research study.

Additionally, don’t forget to design a good survey experience for both mobile and desktop users. According to Pew Research Center, nearly half of the smartphone users access the internet mainly from their mobile phones and 14 percent of American adults are smartphone-only internet users. (3)

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Step 6: Survey Logic

Last but not least, logic is another critical aspect of the survey design. If the survey logic is flawed, respondents may not continue in the right direction. Make sure to test the logic to ensure that selecting one answer leads to the next logical question instead of a series of unrelated queries.

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How to Effectively Use Survey Research with Starlight Analytics

Designing and conducting a survey is almost as much science as it is an art. To craft great survey research, you need technical skills, consider the psychological elements, and have a broad understanding of marketing.

The ultimate goal of the survey is to ask the right questions in the right manner to acquire the right results.

Bringing a new product to the market is a long process and requires a lot of research and analysis. In your journey to gather information or ideas for your business, Starlight Analytics can be an excellent guide. Starlight Analytics' validate and launch solution helps you measure your product's market demand and refine product features and benefits so you can launch with confidence. The process starts with custom research to design the survey according to your needs, execute the survey, and deliver the key insights on time.

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References

1. Survey research in the United States: roots and emergence, 1890-1960 https://searchworks.stanford.edu/view/10733873    
2. How to create a survey questionnaire that gets great responses https://luc.id/knowledgehub/how-to-create-a-survey-questionnaire-that-gets-great-responses/    
3. Internet/broadband fact sheet https://www.pewresearch.org/internet/fact-sheet/internet-broadband/    

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