Of the many tools that marketers employ, test marketing is perhaps the most frequently misunderstood, misinterpreted and misused – all at an awesome expense. This paper is dedicated to all products abandoned after test marketing. It is a warning to the overtly cautious who expend valuable time and resources in test marketing dubious products. And it is a challenge for all marketers to find quicker and more meaningful ways of dealing with the risk and uncertainty surrounding the development and launch of new products.
Classical Premise
The classical premise on which test marketing rests is that it reduces the risk associated with commercialisation of new products by miniaturising a national launch. The last few years have therefore witnessed an increasing dependence on larger test areas, which can approximate the national climate.
Traditionally, test marketing has been that stage when everything done until then is ready to be checked out in the marketplace. Such a mechanism provides marketers with the opportunity to evaluate either selected variables (like product formulation, price, packaging, advertising, overall position) or overall strategy.
Some market testing is also undertaken to determine the ‘productivity’ of the various marketing mix elements, in order to arrive at an optimal combination before a national launch. Typical questions that must be answered at this stage include the sales effect of increased sampling, changed pricing, different communication platform or another pack design. (The question, however, is whether to continue to test market till the combination of all variables performs as per expectations, or make the necessary changes and launch)
Typically, the decision following a test market is one of forecasting total national sales of the product and the concomitant capacity requirements. Thus far, the rationale is cogent, but simplistic, and falls short on two counts. As a predictive tool, it cannot work effectively, because of the number of confounding variables it has to account for. Even more important is the fact that, whilst it may minimise risk, it cannot maximise profit!
You Cannot Buy Certainty
The ‘chancy’ character of test marketing results from both the variables it seeks to measure and the tools used to measure them. The variables it attempts to measure are frequently difficult to capture, given the frightening opportunities for ambiguity, bias and inadequate reporting of information, all of which result in confusion, complexity and erroneous use.
Take the simple question that all test marketing has to answer: How long should you test market?
There seem to be no set answers. Should you wait for a second purchase (traditional belief) or will the third or fourth purchases provide a reasonably good indicator? What about novelty products whose attractiveness declines with each purchase? What role, character or position will the product finally develop in the consumer’s mind?
If you cannot buy certainty – and you can’t - what justifiable reasons could there be for test marketing?
Opportunity Cost
Whilst the advantages of test marketing are perhaps exaggerated and over-emphasised, the disadvantages are quite often overlooked. In deciding if test marketing is relevant, the scale of risk and investment must be evaluated.
All successful test marketing has an ‘opportunity cost’ – that is, the cost of losing out on higher revenues and profits, the cost of divulging the core elements of your strategy to competition and giving it time to mount its defence, the cost of surrendering the ‘first mover’ advantage – a critical success factor in most businesses.
And all this, for what returns? At best, the hope that armed with test marketing results you can turn a modest success into a huge success, or, at worst, you can abandon an unsuccessful product, despite the resources that may have been committed thus far. Both are fond beliefs, mistakenly cherished. The process of closing down new ventures is painful and one that is avoided by organisations for as long as possible.
How or why does this opportunity cost arise?
Usually, market testing is the culmination of a series of products development stages that include concept testing, product testing, product and concept fit, advertising testing and packaging evaluation. The implicit assumption is that if you are ‘professional’ enough to test market, you would have successfully completed each of the preceding stages. If the product to be test marketed has a dubious record of progression through these stages, then a test market can only be an expensive and foolhardy exercise in abandonment!
The Context
Typically, the stage of evolution of the market and its competitive environment define the context, in which test marketing takes place. And it is here that the tool is dated.
With increasing competition, easier access to technology and increasing number of parity products, the critical marketing requirements are speed and flexibility, the ability to deliver an enduring competitive advantage and the propensity to manage surprise manoeuvres. Test marketing, by its very definition, cannot justifiably deliver this.
Let us take two alternative scenarios, simplified to illustrate the point. In the first case, consider a market that is competitive, that is, there are substitute brands or product forms capable of satisfying the same need category. As a new entrant in this market, you can either launch a parity product with no meaningful advantage (in which case, what value does test marketing add?), or you can launch a perceptibly superior product. In the latter instance, test marketing could actually mean surrendering your competitive advantage, by taking the punch out of your competitive strategy – and making you vulnerable to competition.
On the other hand, if the test marketed product represents a pioneering effort in establishing a new product category, then there are two types of risk – if the experiment fails, everybody learns at your expense; if the experiment succeeds, it attracts new entrants very quickly.
Historically, products were test marketed for two basic reasons, both directed at reducing risk:
*Often the test marketed product represented a pioneering effort in establishing a product category. Markets were evolving, so the speed of competitive response was not a critical factor.
*Other available tools and techniques for progressing products through various stages were not incisive enough to provide robust indicators of expected marketplace performance.
With the advancement in research systems and techniques and the successful experimentation abroad with simulated test markets, the use of the traditional test marketing tool is actually diminishing. Marketers therefore need to review the value addition of test marketing in the context of securing similar information in a manner that is quicker, more efficient, less expensive and more confidential.
And Finally
The bias against test marketing is intentional to stress the point that the tool, as traditionally conceptualised, has limited use. Also, the expectation and responsibility it carries is far greater than its ability to deliver. Marketers need to recognise this quite clearly. Whilst the major reasons for its perpetuation will continue to be risk minimisation, the cost associated with this will escalate in the coming years, as the environment becomes increasingly competitive.
The challenge in the coming decade will therefore be to find other- quicker and less expensive – ways to answer the same questions. The reasons for test marketing are too well known and obvious, and since the obvious is so obvious, it has not been stated.
In the age of marketing warfare, test marketing is a blunt weapon. Battles are not won by first testing your overall strategy or your ammunition in a limited area. Battles are won by launching a full attack and taking the enemy by surprise. Similarly, products need to be pre-tested and then aggressively launched. Test marketing cannot be a substitute for the rigorous pre-testing of products and concepts.