What Capacity Problems Are Encountered When a New Drug Is Introduced to the Market?
To every marketing executive, the necessity and value of test marketing are ofttimes murky issues. The problem is partly that new products aren't developed and put through their paces in a systematic enough way to permit marketing men know when a exam market is actually in order. Compounding this difficulty is that the goals of test marketing are sometimes unclear and that the data, once gathered, is often improperly used. This article is an try to lay bare the bones of the issue. Beginning with an overview of sound new product development, information technology clarifies when a test marketplace should be done, what its aims should be, and to what uses information technology should be put. Relying for many of their judgments on quoted first-person interview cloth with marketing executives, the authors finish with a postscript on how technological innovation can assist in test marketing.
The executive must weigh a myriad of information every bit he decides whether to go with a new product. To help him in his decision, he may consider test marketing to gather yet more information.
For the executive contemplating test marketing, we intend to focus first on three strategic questions:
- When should you conduct a examination market?
- What can yous learn from a examination market?
- How should you utilise information from a test market place?
We will then explore recent developments in new product research—specifically, the employ of simulation models and test markets in the laboratory environs.
The questions and answers that follow reverberate test marketing experiences we gathered from 31 marketing enquiry executives who had been involved in hundreds of new production introductions. (See the sidebar "Commentators" for the list of interviewees.) These products included packaged grocery items, health-care products, and consumer durables. The executives represent three orientations toward exam markets—the manufacturer, the advertising agency, and the marketing research supplied.
Whether to test marketplace is a compromise between collecting more information, at considerable direct and indirect cost, to reduce dubiety, and introducing the production immediately to brand money. Every bit Posner points out, "Every month in test means giving up sales if the product turns out to be successful."
The directly costs of exam marketing include a airplane pilot found to make the product, commercials, an advertising agency considering media are not billed, point-of-sale material produced in small quantities, college media expenses because of low volumes, couponing, sampling, and higher merchandise allowances to obtain distribution. For example, the cost for a typical ii-city test market place in 1975 was $250,000. 4 tests were required to test two levels of ad weight. This meant a market testing cost of $500,000.
Merely there are also indirect costs. There is, for example, the price of revealing a new product idea to a competitor. If he is better organized for new product introductions, he tin beat you to the market. It is hard to approximate the cost of beingness second in the market, simply marketing experience indicates that it means a lower market share and college promotional costs.
Some other indirect toll is that of exposure. "If you are promoting a family brand, you are exposing the name of your company as well as the brand," Dirt-camp reminds.
"If y'all get a reputation for bombing, you may accept trouble getting distribution the next time, or in enlisting the enthusiasm of the sales force," observes Kuehn. It is impossible to estimate these exposure costs.
Diversion of employee fourth dimension and activities is an internal, out-of-pocket expense that is rarely quantified when the cost of examination markets is estimated. "The internal costs for examination marketing are incredible. They divert management attention and manpower from other activities," McMennamin warns.
Adds Newman, "Sales direction objects to too many exam markets considering they take abroad from sales activities."
These high directly and indirect costs of test marketing provide a strong incentive for postponing the decision to test market until the marketing executive feels confident he has the three basic elements of the ideal production development plan secure: a successful production, a competitive marketing strategy, and a superior communication plan. Many researchers feel that exam marketing should exist the final check before rolling the product out into national distribution. "I would say the batting boilerplate ought to exist somewhere between 65% and 75%," Pearson calculates.
Light maintains that "when you go into test marketplace, you've made the conclusion to go. The exam market can of course modify your plans by giving you a no-get. But in the absence of bad results, you go along."
The rising costs of test markets have led researchers to employ less expensive methods to impale a product or advertising campaign early in the procedure of new production development. "You lot certainly don't want to employ a exam market to learn something that you could have learned earlier—test marketing is much too expensive," Longman insists.
Implicit in the comments of our marketing executives is a well-articulated new production development procedure. Information technology is to this process that the executives tacitly appeal when they brand their judgments on the costs of test marketing.
A conceptualization of this process appears in the exhibit, "An Idealized Process For New Product Evolution." Hither nosotros can run into how a production and a advice programme should be refined before test marketing.
Exhibit An Idealized Process For New Product Evolution
When Should You lot Conduct a Exam Marketplace?
The first step in the new product sequence is an identification of opportunities—needs non being met adequately past products that are currently bachelor. This stage of research frequently uses qualitative techniques borrowed from social psychology. I method often used is the focus-group or group-depth interview. This is a ii-hour give-and-take in which viii to 12 persons are asked to describe their experiences with present products or to recount how they handle specific problems.
For case, a pharmaceutical company may ask a group of immature mothers how they care for a child's cold. Mothers' perceptions of the strengths and weaknesses of bachelor products will come up to light during these discussions. Such interviews provide concepts for new products or for extension of present products. These concepts are actually hypotheses that can and so be tested with more than quantitative methods such equally the survey.
Elimination of all but a few of the concepts is naturally a subjective process. Information technology may be based on the experience of marketing executives, the politics of the visitor, or the executives' definition of their business and its capacity. (Capacity should be defined to include not simply production and financial capabilities, merely besides executives' ability to operate in the industry of the proposed product.)
The number of product concepts finally chosen depends on the resources of the company and its strategy for new products. Given limited resources, should a visitor select merely one or two concepts and spend nigh of its resources on developing communication plans, or should it retain 4 or v product concepts and test only a few communication plans for each ane? The respond to this question must reflect the history and strengths of the organization. If most of its resources are in production R&D, it will probably experiment more than with concepts than if its strength is in marketing and communications.
The adjacent step in our platonic new product development is creating a preliminary profit programme that estimates the length of the payout. Based largely on estimates past experienced marketing executives, this profit program tin eliminate product candidates that practice non reach the minimum payout flow set by management.
(Each stage in the exhibit replaces management estimates with data, thereby reducing the range of uncertainty in estimating the profit plan.)
The center department of the showroom has three columns—product development, strategy development, and communication development. These columns emphasize a very of import point: the steps contained in them are taken simultaneously, non serially. Advertising evolution, for example, does not wait until a product is refined earlier starting its piece of work, but begins immediately on the problem of communicating the concept reflected in the item.
Anticipated availability of a product in part determines the methods for its testing. For instance, a minimum of facilities may be required to produce actual products for testing a product extension such equally the improver of a lemon flavor to an existing brand. In contrast, a new home entertainment center requires a whole new production facility. In this latter instance, the concept is pretested in the beginning phase of product testing and the production in the second stage. (Run into the showroom.) At the conclusion of these concept and product tests, the profit plan can then exist revised to take into account information derived from the inquiry. These new data propose levels of production costs and therefore of product acceptability. If a proposed product meets the minimum payout period, it can and then go into extended product employ tests.
Marketing strategy requires setting goals, pricing strategies, and distribution strategies for a new production. Rough estimates of price ranges may be part of product testing. If your company plans to use its present channels of distribution, the channel strategy may exist that of determining how to get your channel to have the new product. If the strategy includes the development of a new channel—such every bit was required by the successful Hanes strategy of distributing "L'eggs" hosiery through supermarkets—considerable work may exist needed to estimate the costs of such a tactic.
Advice strategy includes the development of the package, the re-create theme for advertisements, and the choice of the desired media mix. It is of import to note that the communication program feeds into the development of the marketing mix plans for strategy development. The estimated price of the communication plan is input for the terminal estimated profit plan. The plan is then submitted to direction for approval in gild to proceed to the examination market stage.
When, then, should a test market be washed? The feel of our experts suggests strongly that, as Saint says, "You lot become into examination market under the assumption that you accept a successful product."
What Tin You Learn?
But when production and communications research have already told you that you have a successful product and communication plan, why should you get to the expense of test marketing, adding to the costs of delayed revenues from a successful item?
Our survey indicates that the primary purpose of a test market is to provide, as Newman puts information technology, a "good dress rehearsal for testing all of the product elements together, not individually." Before the test market, the product and the communication plan take been tested separately. The test market combines both these elements. Furthermore, information technology tests the elements of the plan and their combinations in the real earth. It is, Posner says, a "microcosm of what you will be doing and what will happen nationally."
A real-world test of the marketing plan volition provide estimates of marketing plan productivity, suggestions for improving the plan's productivity, and a disaster cheque.
Productivity of the marketing plan
The test market provides measures of consumers' responses to those elements that have been pretested—the production, the price, and the communication plan. It also measures the trade's acceptance of the product, the strategy, and the advice program. (In most cases, the company tin can rely on its experience with the trade to estimate future credence.)
Consumer response
By measuring levels of consumer awareness, product trial, echo buy, market share, and sales volume, the exam market gives some indication of the productivity of the elements of the marketing plan. These measures are the footing for making the "go/no-become" conclusion. Such a conclusion can exist made on the basis of rule-of-thumb—for example, drop the production if the trial rate is less than 60%. The decision is then a financial one, the information from the test markets having been inputs into the profit plan.
Test markets provide better estimates of consumer response than any pretesting. Simply, every bit Claycamp emphasizes, "Virtually all you lot tin can expect from a exam market is the answers to the questions that you are request of it. In other words, one has to be very specific about what one wants from a test marketplace. For this reason, they actually are designed only for become/no-go decisions."
Pearson agrees: "Test marketing can tell you if you have a loser, a medium success, or a giant success. It cannot fine-tune a payout programme betwixt a two share and a three share."
However, Ossip asserts that "nosotros find exam markets useful in telling us whether we will brand our minimum."
Lavidge sees two reasons for a test market: "One reason to test market is to decide how much of the product is likely to sell so that yous tin can determine whether to get national. The other reason to test marketplace is to decide how to marketplace the product."
Merchandise response
"How to market" includes the question of trade acceptance—which, in many cases, has not been tested in the procedure of new product development. Saint describes the trouble: "Suppose Chesebrough came out with an entirely new product in an unfamiliar product category. The Chesebrough sales force and Chesebrough as a company accept congenital a fine reputation in the health and beauty-aid field. But in this case you would be taking the Chesebrough salesman and putting him in a new buyer'southward office. The soap buyer wouldn't know the salesman. So you lot would want to see the capacity of your sales strength to sell an unfamiliar production to unfamiliar buyers." Thus acceptance of a new product is greatly dependent on experience and a successful track record.
Feel in the product category enables the researcher to make reliable estimates of trade acceptance. "If yous don't know what kind of distribution your sales strength is capable of getting, either you lot don't know much near your sales people or else they are very unreliable," Pearson contends.
Experienced researchers estimate that the effect of the actress emphasis given by the sales strength in the test market gains a fifteen% to 17% college sales level than would be achieved after having gone national with the product. Eggert affirms this: "In a test, you get more emphasis, since the sales manager visits the place 2 or three times. And only the sheer fact that he visits adds impetus to a product."
Existence first with a new product is extremely important in the grocery-product category, where limited shelf infinite in a store constrains distribution. When Gillette successfully introduced "The Dry Look," a hair spray for men, several other companies tried to cash in on the success by introducing hair sprays of their ain. Since pilus sprays came in much larger containers than most hair preparations for men, more than shelf space was required to stock the aforementioned number of competing brands. And considering retailers tend to devote a fixed amount of shelf space to a detail product category, many of the companies with me-too products had difficulty getting trade credence for copied items.
When measuring merchandise acceptance is non a problem (every bit is often the case), a marketer may use a controlled store test, which profoundly reduces the time required to run a test market.
A successful test marketplace can ameliorate the sales force's power to obtain distribution during national introduction. A resounding success in, say, Albany is often useful to the salesman seeking trade acceptance in St. Louis. The salesman is equipped with existent market results, not in-house examination results or the results of a survey. The simply question is whether the results in Albany are applicable to the situation in St. Louis.
How to improve marketing productivity
As we discussed before, you should run a test marketplace just after extensive pretesting has shown that your new product will be a winner. And even though it is useful to go better estimates of consumer and merchandise acceptance, some marketers design their examination markets to provide these better estimates and to provide information that volition enable them to improve the productivity of the plan. As Schucker says, "Before test marketing, you lot are convinced at to the lowest degree that the business is there. So the question becomes one of how loftier you tin can go, how much leverage through your marketing variables y'all tin apply to the business concern to make it bigger."
And von Gonten agrees: "I don't want to become to test market with anything that I don't know will exist a success. And I will use the test market to derive a means to brand my production an even bigger success."
To use the test marketplace to improve the productivity of the marketing plan requires a research design that tests variations in the plan. "There is more to be learned from test marketing than an judge of trial and echo. There are the effects of sampling to be learned. In that location are also the effects of varying levels of promotion to exist learned," Newman explains.
We conducted an breezy survey of 25 marketing research executives attending a seminar on exam marketing at the University of North Carolina at Chapel Hill to larn how they recommend using test markets. These are the results:
Saint's experience with "Vaseline Intensive Intendance" manus lotion illustrates how test markets tin can improve the productivity of the marketing mix. "Nosotros tested in three markets. In two of the markets we went with direct advertising, and in the third market we used a combination of advertising and sampling. The success nosotros plant in that third market led us to a national program which used a combination of sampling and advertising."
However, enquiry designs can be complicated when you lot are testing several variables in the marketing mix. For example, the famous DuPont test of advertising for cookware coated with "Teflon" used thirteen cities to measure the direct and cumulative effects of three levels of idiot box advertising.1 As the number of elements or levels to exist tested increases, the number of cities, and therefore the costs of test marketing, increase.
Newman feels that "ideally, you lot should have a minimum of four cities on each variable," while Schucker asserts that "you demand at least two markets per variable." Included in these increased costs are the expense of getting distribution in an increased number of cities beyond the country. Similar problems arise in purchasing advertising.
Marketers who want to use test marketing to examination several elements in the marketing mix may want to consider an approach used by Michael von Gonten. This approach uses a unmarried large city as the exam site and treats neighborhoods as separate markets. The logistical problems associated with multiple-metropolis tests are therefore greatly reduced. A unmarried-metropolis test may involve only one sales district. Shipping and warehousing costs are thus reduced. Media purchases are simplified.
Another feature of this design is a competitive one. Testing in a unmarried urban center reduces exposure to competitors and may make it difficult for them to know the nature of the examination. Variables under the control of the marketer—such as sampling, couponing, and in-shop variations—may work better in this pattern than media tests considering few impress and electronic media have separate runs within cities.
Information technology is naturally possible to design a test that is too complex. As Fountaine says, "The further you get from reality, the more than probable you are to brand an error."
Pearson avers: "You better not do too many unlike things in test market because, if you do, you are going to confound your purposes."
How to avoid disaster
Murphy's Law is familiar to most businessmen: "If anything can become wrong, it volition." This police force is particularly descriptive of the new product development process. Disasters are common in the development and introduction of new products, and exam markets are 1 of the ways to avoid as many disasters every bit possible.
The following is a fractional list of the variety of things that have gone wrong in the development of a new product:
- Because packages would not stack, the scouring pads barbarous off the shelf.
- A dog food discolored on the shop shelves.
- In common cold weather condition, infant food separated into a clear liquid and a sludge.
- In hot weather, cigarettes in a new packet dried out.
- A pet food gave the test animals diarrhea.
- When it was combined with a cost reduction, a product alter in a liquid detergent was thought by consumers to be dilution with water.
- Because of bereft mucilage, over one-half of the packages came apart during transit.
- Excessive settling in a box of newspaper tissues acquired the box to exist one-third empty at purchase.
- A big proportion of samples was not delivered until long subsequently the exam.
Information technology is hard, however, to justify a test market solely as a disaster cheque. Equally Pearson points out, "Some people put a lot of emphasis on the fact that a test market is a dry run. My feeling is that it is an awfully expensive dry out run."
How Should You Utilize Test Data?
Exam marketing's function is the evaluation of marketing plans. Many researchers caution against two major misuses.
1. Evaluation, not generation or development
Exam marketing is the last stride in a process whose goal is a successful product. The "ideal" process begins with the generation of new product ideas and ends with the evaluation of a complete marketing plan. The beginning of this process, as we showed in the exhibit, is designed to generate many ideas with a minimum of evaluation. These ideas are then subjected to a series of screenings using criteria established by corporate policy.
For instance, the get-go screen in the exhibit is a fiscal one—a rough turn a profit plan that compares the estimated payout period with the maximum period allowed by corporate policy. Concepts that pass through this screen receive further evaluation as they laissez passer through successive screens during production and communication evolution. A concept that fails to pass through a screen may be killed, or it may be reevaluated and revised.
The outputs of the production and advice developments should be combined with the marketing strategy to form a consummate marketing plan. From this point, the procedure should be concerned with the evaluation of the plan and some fine-tuning, not with generation or development.
If idea generation and concept evolution appear at the test market phase, these reflect an unwillingness on the part of management to kill products earlier. A low "kill ratio" early in the screening process indicates that criteria are not stringent enough or that direction is overriding them.
Gibson warns: "Test marketing is a big, expensive thing. If your process lets everything get through to test marketplace, you lot are, by definition, non going to work on many ideas and you are not going to have many successes unless you just happen to have bullheaded, impaired luck. Yous have to have a procedure that permits lots of ideas at the outset that gradually get weeded out."
The process for product evolution is non a mechanical one. Information technology is open to inputs from executives with creative spirit. And a creative proposition may, of form, override a criterion that has been established for a new product policy. It is important to remember, however, that what is needed first is, according to Pearson, a policy that clearly says:
"No concept that scores below a certain level will proceed to the next step. Just because you have such a policy naturally doesn't mean that you shouldn't sometimes featherbed it. But at least yous should spell out the general rules and so you know what you're bypassing.
"We should articulate a policy that says, 'Well, certain, it is all right to bypass the system, only let'due south be sure everybody knows what the rules are and accepts the fact that we take fabricated a change. Considering somebody has a swell insight, a great solution to a corking marketing demand, we are going to go full steam ahead to test market place or fifty-fifty national markets.' Y'all then preserve your flexibility, merely at the aforementioned fourth dimension you lot don't allow it confuse your system. If virtually of your ideas go through a systematic process of development and evaluation, and so at to the lowest degree you know that y'all have the odds working for you."
Why are criteria overridden? The answers seem to be related to differences in reward systems for researchers and product managers.
2. Evaluation of plans, not people
Product managers tend to say "go" if a product concept does non look bad; researchers desire to say "stop" unless information technology looks good. This deviation in philosophy is the effect of differences in evaluating product managers and researchers: product managers succeed by having successful products; researchers are expected to forbid costly failures.
McMennamin observes that "because of the pressure to get something into test market, it's amazing how unconcerned product managers can exist going into one. But when negative results showtime coming in, they get very detailed in their explanations of what's happening."
These differences in philosophy come into conflict in the new production evolution procedure during the establishment of criteria for evaluation. Researchers would similar higher levels for earlier kill. Product managers would similar lower levels so that a larger number of products could accomplish test market. The marketing executive must reconcile these differences by establishing screening criteria consistent with corporate objectives, resources, and opportunities.
In add-on to establishing these criteria, marketing executives must establish the policies for overriding them. Researchers agree with the need to override criteria, but they argue that an override should exist noted as an exception to the system. This notation protects the researcher from unfair criticism without constraining the production managing director's artistic spirit.
In conjunction with other information
To reiterate a point fabricated earlier, "Test marketing," says Levine, "should not exist used for trying to obtain sales-point estimates in a national market."
Posner concurs: "Management has regarded examination marketing results every bit point estimates and has not accepted their imprecision. The results should be considered in economical-risk terms."
"Researchers bring management information which is, at all-time, qualitative. Management puts it with information information technology already has and then makes a decision," concludes Dunn. Management, like navigators, should use more one source of information when sailing in dangerous waters.
The reality and integrative nature of a test market make information technology more apparent to the executive than any other exam procedure. This partially explains why executives focus primarily on test market results without integrating other data. A 2nd reason for relying only on test markets is that it is difficult to assimilate the multifariousness of information and judgments bachelor to the marketing executive. But recently developed simulation models tin can aid the marketing executive in combining information to make new product decisions.
Recent Developments
The high costs of examination marketing—indirect and directly—provide an incentive for developing methods that circumvent this process. Laboratory and mathematical simulation models are two developments.
Laboratory simulation
In this process, a sample of consumers is exposed to exam commercials then allowed to shop in a simulated supermarket environment. Demographic, economic, and brand preference data can be obtained prior to the test. Followup interviews after home utilise measure product satisfaction and intentions to repurchase. These data can and then be fed into mathematical models that predict market share.
There are 3 possible alternatives later on the laboratory simulation. Outset, the product may be killed outright. 2nd, favorable laboratory simulation results may encourage the marketer to go directly to a regional rollout. Third, the laboratory simulation may exist followed by a test market to measure the productivity of the marketing plan, including merchandise acceptance, to fine-tune the programme, and to serve every bit a disaster check.
Mathematical marketplace simulation
Marketing researchers accept established relationships among promotional expenditures, awareness, trial, and repeat purchase that are used in mathematical simulations to predict market share. Market share predictions become inputs to the profit plan that estimates the payout flow.
Simulation models are used first to develop an initial payout judge. At this stage in the procedure, the inputs to the model are executive judgments. Production-examination information replace executive judgment in the next estimate of the payout period. The gauge tin so be revised once again by using the simulation model with data from the extended production-utilise exam and communication tests.
Mathematical simulations complement examination marketing in a multifariousness of ways. "They force people to consider the variables with which they are dealing before they go into test market place," says McMennamin. Models can be used to project examination market results then that tests can exist stopped sooner and they tin be used for diagnostics after a test market place is completed.
Concluding Note
The conclusion to test marketplace should exist made just after the executive has received a consummate marketing plan based on comprehensive product and communication tests. Examination markets should be conducted to learn well-nigh the productivity of the marketing plan in terms of both consumer and trade response, to learn ways to improve the productivity of the plan, and to avoid potential disasters. The results of the examination market should be used to evaluate the marketing programme, not to generate boosted ideas, and not for the evaluation of people.
Executives play a major role in the new product development process past establishing levels of criteria for evaluation and policies for overriding these levels. These levels and policies are part of the mechanism past which executives control the new product development process.
1. James C. Becknell, Jr. and Robert Due west. McIsaac, "Exam Marketing Cookware Coated with 'Teflon,' " Periodical of Advertising Research, September 1963, p. 2.
A version of this article appeared in the May 1976 issue of Harvard Business organization Review.
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Source: https://hbr.org/1976/05/test-marketing-in-new-product-development
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