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Test Marketing of New Consumer Products Author(s): Frank Ladik, Leonard Kent and Perham C. Nahl Source: Journal of Marketing, Vol. 24, No. 4 (Apr., 1960), pp. 29-34Published by: American Marketing AssociationStable URL: http://www.jstor.org/stable/1248401Accessed: 20-04-2015 10:14 UTC

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Test Marketing of New Consumer Products

* FRANK LADIK, LEONARD KENT, and PERHAM C. NAHL Why should new consumer products be tried out in test markets?

This article points out things to do, and things to avoid. The design, control, and evaluation of test-marketing programs are

outlined in terms of proper selection of markets, adequacy of the design for measuring results, and optimum length of tests. Number of markets, measurements needed at each stage of testing, and cost and timing considerations are discussed.

PROBABLY the most important purpose of test-marketing programs is to aid in

evaluating opportunities for new products. Of course, the term "new" may have a

number of different meanings. Some new products never have been offered to consumers, while others represent simply a change in form, content, or perhaps pack- aging. Sometimes the term "new" has been used when the only change has been one in marketing approach. Whatever the precise meaning, in each case it has offered a challenge to the marketing team, including advertising, to do a more effective selling job.

Because of increased emphasis on new- product programs and the corollary em-

* About the Authors. Frank Ladik is a Research Su- pervisor with Needham, Louis and Brorby advertising agency, Chicago. Prior to joining NL&B, and after graduating from the University of Illinois with a B.S. in Marketing, Mr. Ladik spent several years with a major food processor as an economic and market research analyst, with extensive experience in new- product programs.

Leonard Kent is Vice President and Director of Research of Needham, Louis and Brorby. Dr. Kent received his Ph.D. in Statistics and Economics at the University of Chicago, where he taught for eight years. He had been a member of the firm of Alder- son and Sessions in Philadelphia doing marketing research and management counseling.

Perham C. Nahl is Director of Creative Research for Needham, Louis and Brorby. Dr. Nahl received his Ph.D. in Economics at the University of Cali- fornia, and taught there, at Oklahoma A. and M. College, and at Northwestern University. During World War II he headed the planning division for the rationing of shoes and rubber footwear in the OPA, Washington.

phasis on test marketing, a set of general procedures and limitations is presented in this article. These can be of assistance in the design, control, and evaluation of test-marketing programs.

Each test-marketing situation is unique. Each client, brand, product, and market situation will make somewhat different demands on a test-marketing program. Therefore, the intent is to cover only the more basic principles of test marketing, recognizing that these principles cannot always be strictly adhered to in actual operations.

TEST MARKETING IN INTRODUCING A NEW PRODUCT

In any organized new-product program, there is a screening process which begins with the elimination and selection of potential products or variations at the "idea" stage and continues through the various stages of development until finally the "new" product is considered ready for sale. More and more companies are reducing the risks of faulty marketing decisions by first offering the product on a limited basis.

It is axiomatic that product acceptabil- ity should be thoroughly tested through the laboratory and through consumer research before the product is offered for sale. Consumer research can indicate whether or not consumers "like" the new product, can pinpoint some of their likes and dislikes, and can provide comparisons of the new product with those already

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JOURNAL OF MARKETING

being sold. However, the only way a manufacturer or distributor can really know whether consumers will buy the product is to offer it for sale. If done on a limited basis, the marketer stands to benefit from the test program, even if the introduction is not successful.

A successful operation not only provides a "go ahead" for broadening the introduction, but also sound information for planning and launching the expanded program. It is not enough to know whether consumers will buy the brand. It is also important to know how much the consumer will buy, how often, and what profit this volume will yield.

If the test operation shows negative results, the marketer conserves his capital and other resources with a minimum ad- verse effect on the company's reputation, and gains information and experience that will prove valuable later.

Test marketing, then, involves offering the product for sale in a limited geographic area (or areas), resembling as nearly as possible the expanded market in which the product eventually may be sold. A program of test marketing must be carried out with a methodology and on a scale which will permit reasonably ac- curate projection of its results.

Such tests should be conducted when the potential financial loss to the company through new-product failure, or through the failure of a market plan or approach, is significantly greater than the cost of the proposed test-marketing procedure. This assumes not only that the new product is potentially important to the manufacturer or distributor, but also that any variables to be tested are of such significance that measurable variations in results may be expected.

WHAT CAN BE LEARNED THROUGH TEST MARKETING?

Answers provided by test marketing obviously will vary as test objectives vary. However, market tests can be designed to provide the following different types of information:

i. Rather than merely showing whether a product can be sold at a profit, test marketing can and should be used to indicate

maximum profitability. It is not enough to establish that a previously decided upon minimum share of the market can be attained with a specific level of selling, promotional, and advertising expenditure. Effective test marketing should help establish the optimum combination of volume, marketing expenditure, and profit. While sales goals and expenditure levels frequently are set on the basis of judgment, it is usually impossible to fore- cast accurately the share or volume potentials of a new product.

2. Test marketing provides an opportunity for determining the market profile of a new product. This includes characteristics of consumers, the way the product is used, frequency of use, and purchase history . . . including frequency of purchase, who buys, who makes buying decisions, etc.

3. Test-marketing performance offers an opportunity to evaluate the effectiveness of a marketing program (or of alternative marketing programs), particularly in the areas of securing trial and usage of the product and evaluating amounts ex- pended for advertising and promotion.

4. While copy testing along the lines of believability, understanding, and copy- point registration normally is completed prior to test marketing, the test operation provides an opportunity for further checking of these factors.

5. Test marketing can provide up-to-date trade information which contributes to the evaluation of the test-market operation through the use of special audits and surveys. Information, both for the test product and for competitive products, can be gathered on trade attitudes, trade allowances and discounts, price-off deals, displays, spot-advertising expenditures, promotions, distribution and out of stock, inventory situations, shelf facings and positioning, and sales-force performance and requirements.

6. Test marketing offers an opportunity to obtain from consumers a wide variety of information relevant to the test operation, including facts, opinions, and attitudes concerning the test product and competitive products.

HOW MUCH CAN BE TESTED? There is a practical limit to the num-

ber of market programs, or variations, which can be tested at one time. This

30 April 1960


TEST MARKETING OF NEW CONSUMER PRODUCTS

limit is for the most part economic. From a research point of view, it is possible to test almost any number of variables or groups of variables, including such things as different price levels, sizes, media com- binations, advertising themes, and consumer and dealer promotions.

However, principally because of cost considerations, an expanded program to cover many of these variables is not practicable. A minimum number of test variations will hold losses to a minimum if the product or marketing variations prove un- successful.

On the other hand, should the product or marketing variations prove successful, additional information probably will be desired and required. This additional information usually can be determined more efficiently (faster and at less cost) during the conduct of the original test series.

QUALIFICATIONS CONCERNING TEST MARKETING

If test marketing is to be conducted, there are certain conditions which must be met before test results may be used with confidence:

The objectives of the test must be specific and well defined. The test must be well designed. It must be well supervised and analyzed.

The following points also need to be considered for a program of test marketing:

i. Product or program variations must be large enough to provide for measurable differences in results within the budget and time requirements.

2. When seeking advertising and promotional expenditure levels, it is desirable to test at least two variations-a maximum and a minimum. All too frequently, an expenditure level for testing is selected on a rather arbitrary estimate of what is affordable, based on anticipated sales and earnings. Typically, estimates of sales and earnings are conservative; for this reason many products never have an opportunity to show their true potential. Only through testing more than one expenditure level can a reasonable estimate of a product's potential be determined.

3. All important variations to be tested should be tested, if practicable, at the

same time (although different markets may be required).

4. If a new variation is to be tested, and the results compared with those of a previous test of another variation, it is desirable that both be tested concur- rently. This is to eliminate possible differences due to the time factor.

5. All factors other than those being tested should be held as constant as practicable, and allowed for in evaluating results.

6. Criteria for action should be established, at least in general terms, prior to testing. Often market findings during the test period will indicate a need for modifying previously established criteria.

HOW LONG IS THE OPTIMUM TESTING PERIOD?

One of the most serious and potentially expensive errors facing the test-marketing program is the temptation to utilize short cuts. And one of the more frequent and dangerous of these is the cutting short of the test run.

Test marketing has been defined as a method of reducing future marketing risks, and thus represents a form of marketing insurance. This insurance, however, is not without its costs. These costs, or premiums, take many forms, including the expenditure of money, time, and ef- fort in carrying out an introductory marketing program; the exposure of a new product and its marketing program for all competitors to see and analyze; and commitments to the trade.

All of these are "premiums" paid for this form of marketing insurance. To re- duce seriously the length of the test run is to pay these premiums in full without realizing the full insurance protection.

The actual length of the test-marketing program should vary, of course, according to the type of product, consumer buying frequency, the nature of the industry and competition, and the activities being tested. However, there are some general rules:

i. In introducing new products, particularly in the grocery-products field, it is best generally if test periods run at least six months. This much time is usually necessary to evaluate brand progress properly. However, if dealing or coupon- ing continues through much of the intro

31



ductory period, then in all probability the test period should be extended to allow a "normal" sales level to come about.

2. If there is to be an evaluation of advertising campaigns in connection with the market test, the concept of cumulative effect through repetition requires that the test be run considerably longer than the usual product-acceptance test. It may well be necessary to run the test as long as a year.

3. For promotional tests, the governing time factor should be the time required for consumers to return to normal buying patterns after their exposure to "deal" merchandise.

Of course, there are substantial pressures exerted-both within and outside the company-as the test progresses, which agitate for a decision before a decision is justified. Ifnracompany Pressures

The drive and competitive spirit which contribute to successful management and aggressive sales policies frequently are characterized by a restlessness and an eagerness to "get going." This restlessness may not only be responsible for setting test machinery in motion before it has been adequately prepared, but may also be responsible for premature interpreta- tion of test data.

Another pressure, perhaps one of the most difficult to combat, results primarily from an unwillingness to accept negative test findings. This lack of objectivity is understandable when it is remembered that by the time the product has been in the test-market stage for some time, management probably has made a consider- able investment in ideas, talent, time, money, and facilities.

Still another form of intracompany pressure comes from members of the sales force not participating in the test. For any number of reasons, including rumors of test-market successes, this group may ac- tively solicit, and in some cases demand, premature expansion of the marketing program.

The carrying out of a reliable test operation rests in no small part on the successful resistance to such pressures.

Market Pressures There are numerous market pressures,

including reputed advantages of market leadership and competitive challenge for market position. Sometimes there is opportunity in the face of weak demand for present products. Others are consumers' loyalty to established brands, and the "bandwagon."

Management, in its earnest desire to be first, or its desire to protect brand position and franchise, or in the face of a slacken- ing demand for its regular products, is sometimes so impatient that it will rely upon preliminary test results. If management believes that competitors will re- spond quickly and that consumer loyalty to any one brand is a fleeting thing, the temptation is to expand the marketing program beyond the test stage before the facts warrant this.

Perhaps the most dangerous form of pressure from the outside comes from trade sources. Wholesalers and dealers, not a part of the original testing program, may hear about a particularly promising new product and exert great pressure on management to "get on the bandwagon." These pressures may be hard to resist, es- pecially where excess production capacity or excess sales capacity exists.

Since even the most expertly conducted test-marketing programs cannot prove conclusively that a product will be a success, it is not difficult to understand management's willingness to go along with the various pressures exerted upon it. The best that can be hoped for is that, after committing substantial sums to testing and paying the premiums for marketing insurance, management will view the pressures as objectively as possible. HOW MANY TEST MARKETS ARE REQUIRED?

There is no fixed answer to the question of how many test markets are required in a test-marketing operation. As the number of test markets for a given variable increases, accuracy increases. And, as the number of markets increases, the cost of testing increases. Obviously a com- promise must be reached between the accuracy required in the test and the

32 April 1960


TEST MARKETING OF NEW CONSUMER PRODUCTS

amount of money to be appropriated for the testing operation.

Disregarding the matter of money available, there are several basic considerations which help to determine the minimum number of markets to be considered:

1. There should not be fewer than two markets for each variation to be tested. This does not include control markets- markets in which the variables to be tested are held constant or allowed for.

2. Where the purpose of the test is to estimate the sales potential of a product which is to be distributed nationally, markets in at least four geographic areas should be used.

3. As the significance of the variables to be tested decreases, the number of markets necessary to reflect the effect of these variables increases. Thus, it is likely that where variations are minor, it may not pay to test market them. The de- termination of which of two secondary copy phrases is more effective in build- ing volume is an example of the type of variable it probably would not pay to market test.

These considerations, relating to the number of markets required, represent an ideal. In practice, the economics of the test situation usually compels a reduction in the number of markets. The extent of this reduction is, quite naturally, a man- agerial decision. Care should be taken, however, that management does not pare the number of markets to be used to a point where confidence levels may not be reliable.

CRITERIA FOR SELECTING TEST MARKETS Because of the necessity for projecta-

bility and comparability of test-market results, markets selected for use in the testing operation should meet certain requirements. Depending upon the purpose of the test, not all of these may receive equal weight, but the list which follows includes most of the generally accepted criteria:

1. The market or markets should not be over-tested. On the other hand, there may be instances when using a market with a "track record" should be considered.

2. The market should have normal histori- cal development in the product class.

3. The market should represent a typical competitive advertising situation.

4. The market should not be dominated by one industry.

5. State capitals, highly industrialized areas (where shut-downs could seriously impair buying power), college towns, and other areas where population characteristics not normal to the product's target market usually should be avoided.

6. Projectability of results is an important factor. Therefore, the markets selected should represent different geographic regions where varying conditions of use might influence sales.

7. The markets selected should be relatively independent, with little strong outside media competition and relatively little of the test market media circulation going outside the areas. The same principle ap- plies to the movement of the product class being tested.

8. The markets should have a media pat- tern which conforms closely to the proposed national media plan. For example, TV set saturation should be close to the U. S. average.

9. Markets selected should not be too small to provide meaningful results nor so large that testing becomes too expensive in terms of the results expected.

WHAT SORT OF MEASUREMENTS ARE NECESSARY?

Specific research methods and their timing will vary with the objectives of the test-marketing program. This again em- phasizes the importance of establishing precise test objectives in advance of the test operation.

Fundamentally there are two types of measurements made in market-testing operations: (i) consumer studies involving usage, habits, reaction, etc., to the brand in question; and (2) sales measurements involving the brand in question, other "company" brands which might be af- fected, and selected competitive brands or products.

When measuring consumer usage, habits, and reactions to the brand, interviewing is usually conducted in four stages, which may, of course, be combined.

i. The "base" stage-interviewing during this stage takes place immediately before the primary distribution phase of the test-

33



marketing program. Its purpose is to establish reference points for use in future analysis.

2. The initial trial stage-interviewing during this stage takes place fairly shortly after the beginning of the test. Its primary purpose is to determine preliminary levels of trial attained.

3. Preliminary usage and reaction stage- interviewing during this stage takes place periodically during the progress of the test. Its purpose is to determine early usage levels and reactions to the product. This stage may phase into the final stage.

4. Final stage-interviewing during this stage frequently takes place about six months after the test has been in progress. Its purpose is to determine current usage levels and reaction to the product after continued exposure.

The in-home interview is probably the most satisfactory method of obtaining the above information. However, telephone interviews or mail questionnaires may be used with relative success.

Sales measurements for most products are satisfactory only if made on a retail- store audit basis. Shipment data are satisfactory only for long-term analysis because of distortions due to filling pipelines and fluctuations in inventory levels. And shipment information does not determine the effect on competition.

Store audits at four-week intervals are generally the most satisfactory sales measurements at the retail level; monthly audits are less desirable because of varia-

tions in the number of business days from month to month. If store-audit information is to be obtained, audits should begin at least four weeks prior to the beginning of the market test in order to establish a base for measuring the product's impact on its competitive environment.

BENEFITS OF TEST MARKETING No practical program of test marketing

can predict with absolute certainty the success or failure of products in the market place. Nevertheless, properly planned and executed test-marketing programs do represent an important means of examin- ing the growth and profit potentials of a company's products.

The benefits are worthwhile either when the product survives, or when the results are negative. Survival should contribute to greater profitability of the expanded operation through information and experience gained under actual marketing operations. In addition to enabling management to proceed with greater confidence and possibly to effect indicated re- visions, a successful test provides evidence to help "sell" the company's own organ- ization and trade on the product.

When a test has negative results, this is a small price to pay for a sound investment. There are, of course, instances where test marketing is not feasible; and in these cases judgment must prevail, even as it does in many phases of a sound test-market program.

MARKETING MEMO Marketing as a Science . . .

Marketing as a science . . . emerged as a separate discipline in the twentieth century and was oriented to immediate results in the business world. Perhaps its greatest weakness, until recently, has been that it had concentrated on the attempt to establish control without giving adequate attention to the companion steps of explanation and predic- tion. This has tended to make marketing research an opportunistic approach to concrete problems.

-Wroe Alderson Marketing Behavior and Executive Action (Homewood, Illinois: Richard D. Irwin, Inc., 1957), p. 9.

34 April 1960


Article Contentsp. 29p. 30p. 31p. 32p. 33p. 34

Issue Table of ContentsThe Journal of Marketing, Vol. 24, No. 4, Apr., 1960Front Matter [pp. 16 - 81]Growth and Profits Through Planned Marketing Innovation [pp. 1 - 8]Retailing in the Soviet Union [pp. 9 - 15]Advertising, Mass Communication, and Tax Deduction [pp. 17 - 22]The Distribution of Industrial Electrical Products [pp. 23 - 28]Test Marketing of New Consumer Products [pp. 29 - 34]What Does Automation Mean to the Marketing Man? [pp. 35 - 37]Problems Peculiar to Export Sales Forecasting [pp. 39 - 42]Self-Service in Retailing [pp. 43 - 48]Myths about Convenience Food Costs [pp. 49 - 55]The Outlook for Capital Spending in the 1960s [pp. 57 - 63]The ForumTrends in State Margarine Legislation [pp. 65 - 69]Mathematical Models of Market Simulation [pp. 69 - 74]Simple Surveys for Legal Evidence [pp. 74 - 76]

A Pioneer in MarketingHenry E. Erdman [pp. 77 - 79]

Industrial MarketingIs Marketing Research Finally Maturing? [pp. 82 - 85]

Legal Developments in Marketing [pp. 86 - 92]Marketing Articles in Review [pp. 93 - 121]Book Reviewsuntitled [pp. 122 - 123]untitled [p. 123]untitled [pp. 123 - 124]untitled [pp. 124 - 125]untitled [pp. 125 - 127]untitled [pp. 127 - 128]untitled [pp. 128 - 129]untitled [pp. 129 - 130]untitled [p. 130]untitled [pp. 130 - 131]untitled [pp. 131 - 132]untitled [pp. 132 - 133]

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