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Implementing New product Decision
UNIT 17 PRETEST MARKETING AND TEST
MARKETING
Objectives
After reading this unit you should be able to:
- discuss pretest marketing methods;
explain ASSESSOR model; and describe marketing methods Structure
17.1 Introduction 17.2 Assessor Model 17.3 Preference Model 17.4 Trial Repeat Model 17.5 Test Marketing 17.6 Test Marketing or No Test Marketing 17.7 Issues in Test Marketing 17.8 Summary 17.9 Self-Assessment Questions 17.10 Further Readings
17.1 INTRODUCTION
Test marketing is the penultimate step in new product development and the last opportunity to safeguard against the introduction of `wrong' new product in the market. Test marketing is an expensive method not only in terms of money, time and other resources, but also the exposure to competition. Hence, alternative methods are suggested before test marketing, like in-house use test, control location or simulated test marketing, mini-market testing, and regional rollouts.
In the pretest market methods the attempt is to simulate the key factors of an actual market condition of a new product introduction to act upon the potential consumer, however in a controlled condition. This helps in better understanding of the impact of key factors on consumption and simultaneously help in reduction in time, space and other resources for testing the product. The main factors suggested by Yankelvich, Skelly and White are.
Creation of awareness among the potential consumer uses various communication mechanisms.
Providing genuine opportunity to the consumer to buy with some interest. Creating a genuine interest for trying the product. Mechanism for collecting free base immediately on factors either encouraging or discouraging use of the product. The products needs to be put on to regular in-house use test, without the knowledge that they are being samples in a test. Repeat purchase measure. Frequency of use measure. Benchmarks for decision making.
Pretest Marketing (PTM) has to be designed in such a way it reflects the current market competition situation, Physical product including packaging advertisement copy, price, and the promotion budget go as into PTM, hence some advertisement is necessary. Number of developed over a period of time.
Protest Marketing Pretest market testing would be conducted when the product with packaging is made available in sufficient quantities, advertising copy is ready, and the decision-makers are in a position to decide the marketing mix elements and a resource budget. The resource approach would help in estimating the following:'
and Test marketing
Forecast the long-term market share of the product and sales volume over the decision period.
- Estimate the draw (sales of new product drawn from competitor's products) and cannibalization (sales achieved at the expense of company's own products).
Provided diagnostic information to help in improving the product, advertisement copy and other relevant launch materials like packaging etc.
Can provide approximate estimates of market share for different marketing strategies.
17.2 ASSESSOR MODEL
The basic procedure of ASSESSOR approach is presented in the Exhibit 17. ASSESSOR estimates the market share using two models, first a preference model and the second, trial repeat mode. If both the models predict similar forecasts, it increases the confidence of the decision maker, if it generates divergent forecasts it would caution the decision maker, to look into the diagnostic information much more closely and seriously.
Design Procedure Measurement
O 1 Personal interview for respondent screening
Criteria for target group identification
O 2 Premeasurement for established brands (self-administered questionnaire)
Composition of `relevant set' of established brands, attribute weights and ratings, and preferences.
X 2 Advertisement exposure of established and new brands
[O 3 ] Measurement of reactions to the advertisements (Self- administered questionnaire)
Optional data can be collected about the believability and likability
Protest Marketing Pij = Probability that participant I choosing the brand/product j for purchase. and Test marketing Pij = 0; if the participant is consideration set does not contain the product j. Hence, the sum of the denominator is overall the products in the ith participants consideration set.
Ci = ith^ participants consideration set.
b = Parameter estimated from the data indicating the rate at which the preference of the products, are transformed into purchase probabilities.
If the usage rates differ significantly across respondents, Pij is weighted based on the usage index Wi to convert the probability of purchase into market shares for products using the equation presented above.
As mentioned earlier parameter b is estimated using the data that collected during the laboratory test. It is an index of rate at which the preferences of the products converted into purchase probabilities.
If b> 1 then the brands with high preference will be having higher purchase probabilities. It would be disproportionately higher than the low-preference brands.
Maximum likelihood estimation procedure is used to estimate the value of eisi. The data used for estimation is from the observations made during the laboratory study before the participants are exposed to new product. The estimation procedure maximizes the likelihood of recovering the actual product/brand choices the respondents indicated in there most recent purchase occasion (2 in the Exhibit).
The task is to estimate the purchase probability to the new product, to do that the preferences are measured for both existing and new products after the product usage. (02 in Exhibit). As the participants are aware of the new product and seen the sample also we can assume that the new product will be in their consideration set of all the participants. Then the equation would be;
Where
Sij= Preference rating of ith respondent of J th^ product after usage.
new = Denotes the new product.
Pij= Purchase probability that the ith respondent will purchase the jth product after usage.
P'i new =Refers to the purchase probability of the new product that the ith consumer will buy the new product after usage.
b= The parameter estimated from the previous equation.
Market Shares can be obtained by summarizing the purchase probabilities for each product.
MS'j =Market share of the product j.
Pij =^ Purchase probability of jth product for ith consumer.
N = Total number of participants in the study.
The market share for the new product can be obtained by;
However, this estimate would be optimistic because it is assumed that every one in the
Implementing New respondent will include the new product in their consideration set. That means every body in the marketplace who includes the new product in their consideration set. To remove this bias, the market shares can be weighted using the proportion of respondents who have included the new product in their consideration set,
product Decision
Wnew : The percentage of respondents who had the new product in their consideration set. Similarly, the weighted market shares can be obtained for all the products. Using the pre trial and post trial market shares it is possible to estimate the cannibalization and draw. To do this we have to participation the respondents into two groups, partition with the new product in their consideration set (Wnew )and others (1-Wnew). Following equations could be used to estimate the sources of market share for the new product.
MS' j = Market share of the product j after the new product is introduced. Guarantee assumption that the market has not expanded between the pre and post think. The extent the new product draws from the projects can be written as: Dj=Msi -MSj The sum of all draws across the existing products is equal to the market share for the new product.
The percentage of new product sales drawn from the company's brands/products is considered to be cannibalization. The proportion of sales obtained at the expense of competitors products/brands is called draws or incremental sales. A new product with higher incremental sales would be good. However, in practice there may be new products with higher cannibalization. In those cases the decision-maker has to analyse the implications of new product on total financial contributions to the firm. A numerical example of preference model is presented Exhibit 17.2. (Adapted from Lilien and Rangaswamy 1998). Exhibit 17. Example of preference model used in ASSESSOR Preference ratings
Pre-use (Sij) Post-use (^) (S (^) ij) Con- sumer (^) Br 1 Br 2 Br 3 Br 4 Br 1 Br 2 Br 3 Br 4 NewBr 1 0.1 0.0 4.9 3.7 0.1 0.0 2.6 1.7 0.2. 2 1.5 0.7 3.0 0.0 1.6 0.6 0.6 0.0 3. 3 2.5 2.9 0.0 0.0 2.3 1.4 0.0 0.0 2. 4 3.1 3.4 0.0 0.0 3.3 3.4 0.0 0.0 0. 5 0.0 1.3 0.0 0.0 0.0 1.2 0.0 0.0 0. 6 4.1 0.0 0.0 0.0 4.3 0.0 0.0 0.0 2. 7 0.4 2.1 0.0 2.9 0.4 2.1 0.0 1.6 0. 8 0.6 0.2 0.0 0.0 0.6 2.2 0.0 0.0 5. 9 4.8 2.4 0.0 0.0 5.0 2.2 0.0 0.0 0. 10 0.7 0.0 4.9 0.0 0.7 0.0 3.4 0.0 09
Implementing New D = Long-run probability that the new product will be available to the target segment. The estimates are mostly desired from the proportion of outlets that carry the product. It is also incorporated based on the management judgement.
C = The probability that the consumer in the target segment receives the new product sample. Management based on the product launch plan also determines this. U = The probability that the consumers who receives a sample will use it. This is also an estimate based on part usage rates and management judgement.
product Decision
In summary FKD, denotes the proportion of consumers who will try the new product if they are aware about the new product and if the product is available to them in their convenient shopping place. The term also refers to the proportion of consumers who will try if the product is provided as sample. The third term (FKD) (CU), is included to adjust the double counting for those who both purchase the new product and receive sample. The long-term repeat rate is estimated in ASSESSOR by the following formula:
The estimate of repeat rate is obtained from the information collected during the post usage survey (Phase II data collection, O 5 in Exhibit).
The formula is derived using Markov chain. At any given time period eti, the purchasers of the new product could be divided into two groups; For Example the new brand of shampoo `Vatika'. Then the two groups would be; (1) those who bought Vatika last time and those who did not buy. The following diagram would illustrate what would happen at the .time period t+ 1. Among the consumers who bought Vatika at time t (X), some proportion of consumers will buy Vatika in t+l, their next purchase occasion (R), the remaining people might have purchased other brands (X- R). In the same way those consumers who didn’t buy Vatika in the time period t, also switchover to Vatika in the time period t+I (SB). The remaining group will continue to purchase the competing brands.
Where PVV = Refers to the probability that the consumer who purchased Vatika (new product) at the time period t, would buy Vatika in the second purchase at the time period t+l. POV = Refers to the probability that the consumers who purchased other than Vatika in time period t, would switch to Vatika in their second purchase at time period t+l. PVO I - PVV P (^) oo = I - P (^) VO
This matrix is called switching matrix in Markov process. Our interest is if the
Protest Marketing purchasing pattern behaves as presented in the matrix period after period indefinitely, what proportion of the consumers would buy Vatika over a long periods of time? In other words what would be the equilibrium repeat rate for Vatika. This can be estimated by the formula presented earlier.
and Test marketing
The trial-repeat model provides an independent estimate of market share, which is used, for comparison. When both the estimates are converging the confidence on the estimates are high. The pretest market models are particularly useful in forecasting new product sales in a well-defined category. Further, the preference model in ASSESSOR generates diagnostic information that could provide very good understanding of the product-market. The preference model would be more accurate in well-defined product categories for which consumers learn about the new products quickly and preference stability quickly and usage rate of the product does not change because of the new product.
Activity I
Enumerate the benefits the firm could derive from pre-testing the new product.
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17.5 TEST MARKETING
Test marketing is primarily used for frequently purchased fast moving consumer goods. However, the general principles can be applied easily to industrial goods and consumer durable goods also. The objectives of test marketing are generally four folds.
They are:
1). To obtain the best estimates of sales volume and market share of the new product.
2). Marketing mix elements like distributor support, advertisement response, and some sales promotion efforts can be evaluated only in the test marketing.
3). Only opportunity to evaluate the entire marketing strategy.
4). It is like a dress rehearsal, time to streamline manufacturing, selling, and delivering the product to consumers.
Before getting on to test marketing it is important to decide whether or not to test market. The trade-off of required investment, the risk of taking the product directly to the market. The risks could be over estimation of the company's ability to manufacture, distribute and sell the new product, company's reputation and morale of employees. The several important factors for consideration are opportunity cost of delaying launch. The third issue is the reaction of competition and company's exposure to competition. When P&G launched' Ariel Compact', a new detergent product in the market, HLL quickly learnt and. launched "Surf Ultra".
Protest Marketing Activity 2 and Test marketing
State advantages and disadvantages of test marketing the following products:
i) Liquid shoe polish
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ii) Petro card
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iii) Simputer (Low Priced Computer)
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iv) New Brand of Home Furniture
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17.7 ISSUES IN BES'T MARKETING
Designing Test Market
Certain important issues have to be made clear before starting test marketing operations. The national market place should be ready, final packaging and advertising should be ready. The national advertising expenditure has to be converted in to GPS, correspondence between advertising expenditure in test marketing and national, GRP should be specified. Importantly, a minimum bench mark sales has to be specified for national roll out or withdraw of the new product.
The next important question is in which markets the test should be conducted. To have a good predictability, normally 3-5 percentage of the households is considered reasonable. However, adequate care has to be taken to select sample markets to have fair representation of the diverse markets. Especially the key variables, like cultural composition, household income distribution, demographic profile should be identified earlier and representative samples have to be chosen for test marketing.
Duration of Test Marketing
Normally test markets are run for ten to twelve months. An important consideration in deciding the duration of test market is length of purchase cycle. Products with longer purchase cycles, like body deodorants, or perfumes need for a longer test market and shorter purchase cycles products like, shampoo sachet, toothpaste requires only shorter duration test markets. On an average the test markets are run to monitor 5-6 cycles of repurchase. However, products with strong seasonal behaviour should be tested through the entire season. For example, soft drinks, certain garments exhibit strong seasonal behaviour. As mentioned earlier preferably whatever variables can be tested earlier. However, certain variables like sales promotion, trade promotion, price, advertising impact and expenditure can be better tested in the test markets.
Design of Experiments
Test markets are to a large extent a controlled experiment. Hence, careful consideration has to be given for designing the experiment. For evaluating different marketing startegies we
Implementing New have to alter the marketing variables to different levels at controlled condition and observe the impact on the sales. Various experimental designs like Completely Randomized Block Design, Latin Square Design, or Greco-Latin Square Design can be used.
product Decision
Data Collection from the Test Markets
Several methods are used to collect data from the test markets, such as store audits, consumer panels, and consumer surveys.
Store Audits
The test marketers have the information of shipments to the retailers. The off takes from the retail outlets are surveyed. During the initial phase of the test marketing the early off-takes from the company will go to fill the distribution channels. Hence, there will be a delay in observing consumer response in the early phase. Apart from the sales data, additional information about the competitive products, prices and dealer relationships, any competitive action etc. also gathered. In India some market research organizations like ORG MARC conducts regular retail audit. This information also provides valuable data for the decision-making.
Consumer Survey
Store audit provides only the sales data, it does not contain information like trial and repeat purchases. For estimating the steady state market share, we need the proportion of trial and repeat purchases. The best way to obtain this information in test market is direct consumer survey. Simultaneously, additional information like brand awareness, other brands purchased, demographic and psychographic variables are also collected, and this information would be useful for decision making.
Diary Panel
A group of consumers were selected and they record everything purchased in the product category during the period of test marketing. They record several prices of information, like, price, quantity purchase, size, favour, brand, SKU, name of the outlet, date of purchase entry and so on. The company gathers the recorded information periodically. However, it is important to consider the learning effects that would take place among the panel members. As the consumers start accounting their purchases seriously, they may start behaving differently.
Analyzing Test Marketing Data
As mentioned in the beginning of this unit, the main objective is to estimate the market share and sales. One way of getting market share estimate is through direct calculation from survey and panel data. Estimating steady state sales would require more time. If the trial and repeat rates are available, long-run market shares can be estimated. As in the case of concept testing and product testing, the diagnostic information would help in refining the marketing strategies employed in the experiment.
Activity 2
Test marketing is time consuming and expensive. What are the appropriate conditions for a ‘go’ decision to test market.
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