Test Marketing
Break Even Market Share
BEV/Total Volume (w/in Category)
Test Markets
* launching new product in small parts of target market Help firms rehearse marketing strategies under realistic market conditions - Particularly useful when products have high risk of failing or jeopardizing firm reputation ex. Taco breakfast sandwich
Focus Group
- Typically 6-10 consumers or product experts, led by a moderator -Discussions often focus on possible additions and product modifications ex. Swiffer, Gladwell Chairs * Steve Jobs was against focus group "Its not the consumers' job to know what they want"
Beta Testing
At home use for specified period
General goals of concept testing
1. Assess consumers' reaction to a new product concept 2. Identify important attributes 3. Determine potential market size
Key Takeaways
1. Concept testing can be informative, and different methods are available 2. Conjoint is a survey and analysis method of inferring how important product attributes are to consumers 3. Running live test markets can be valuable but costly 4. Before launch, calculate breakeven volume
Hazards of Test Marketing
1. Costly 2. Hard to find perfectly representative Markets 3. Competitors can disrupt test markets (competitors can buy all goods in the market to create misleading analysis) 4. Competitors can monitor performance, plan response ex. PopTart
Many uses of conjoint
1. Design of products/services 2. Pricing 3. Segmentation 4. Predicting market potential and market share
Group Dynamics in Focus Groups
1. Peer pressure can often lead to misleading results - Majority may be reluctant to oppose small group of passionate members 2. Such dynamics produce especially unreliable results for goods largely consumed in private - e.g., salad dressing, headache medication, Preparation H 3. But those dynamics could be relevant for goods consumed and/or discussed publicly - New Coke: Individual survey results vs. Focus group results
Different types of conjoint surveys
1. Rating (ex. Hoover) 2. Ranking 3. Choice (ex. Big house) -Help with if sceanrios
Typical Results of Conjoint Analysis
A graph that measures utility (Y) against different variables (X) -The steepest slope means the variable is the most important ex. Prego Chunky Sauce
Peoria
A location in America where that was good to test average consumption patterns
Conjoint analysis
A method for determining the importance of different attributes (to consumers) - Relative importance of product attributes is better measured when attributes are CONsidered JOINTly than separately - Forces consumers to make realistic tradeoffs among attributes by evaluating whole profiles
Prototype Test
Alpha Beta Gamma *They tell you if product is feasible based of consumer interaction Ex. Google Glass
Test Market USA
Columbus Ohio -Popular place to test
How to Evaluate New Products
Concept Testing Prototype Testing Pre-Test Market Test Market Launch! * Must pass each stage
Fixed Cost
Do not fluctuate with output volume ex. R&D, mass media advertising, equipment expenses
Break Even Analysis
Estimating how many units company would have to sell to break even given price and cost structure TC= VC + FC Unit Variable Costs = Variable Costs/Total Volume Unit Margin = Price - Unit Variable Costs =FC/Unit Margins Rev. - FC - VC=0 ($*BEV) - FC - (Unit VC*BEV) = 0 *many different manipulations
Information Acceleration
Fast Forward information, creating future setting to test market
Variable Cost
Fluctuate in direct proportion to the output volume of units produced ex. Cost of raw materials, coupons, sales commission In the very long run, all costs are considered variable
Gamma Testing
Indefinite at home use
Variable and Fixed Cost
Note that fixed costs are defined "within a relevant time period" Deciding which costs are fixed and which are variable depends on the time horizon e.g., in short-run, salaries of permanent full-time employees don't depend on output volume But, in the longer run, company may adjust salaries based on demand for its products/services
Alpha Testing
Product tested in lab