strategies, the greater the regional differences, and the greater the chance of
test-market interference by competitors, the greater the number of cities that
should be used.- Which cities?Each company must develop test-city selection criteria. One
company looks for test cities that have diversified industry, good media cov-
erage, cooperative chain stores, average competitive activity, and no evidence
of being overtested. - Length of test?Market tests last anywhere from a few months to a year. The
longer the product’s average repurchase period, the longer the test period
necessary to observe repeat-purchase rates. This period should be cut down if
competitors are rushing to the market. - What information?Warehouse shipment data will show gross inventory buy-
ing but will not indicate weekly sales at the retail level. Store auditswill show
retail sales and competitors’ market shares but will not reveal buyer charac-
teristics.Consumer panelswill indicate which people are buying which brands
and their loyalty and switching rates. Buyer surveyswill yield in-depth infor-
mation about consumer attitudes, usage, and satisfaction. - What action to take?If the test markets show high trial and repurchase rates,
the product should be launched nationally. If the test markets show a high
trial rate and a low repurchase rate, customers are not satisfied and the prod-
uct should be redesigned or dropped. If the test markets show a low trial rate
and a high repurchase rate, the product is satisfying but more people have to
try it. This means increasing advertising and sales promotion. If trial and re-
purchase rates are both low, the product should be abandoned.
Test marketing permits testing the impact of alternative marketing plans. Colgate-
Palmolive used a different marketing mix in each of four cities to market a new soap
product: (1) an average amount of advertising coupled with free samples distributed
door to door, (2) heavy advertising plus samples, (3) an average amount of advertis-
ing linked with mailed redeemable coupons, and (4) an average amount of advertis-
ing with no special introductory offer. The third alternative generated the best profit
level, although not the highest sales level.
In spite of the benefits of test marketing, many companies question its value to-
day. In a fast-changing marketplace, companies are eager to get to market first. Test
marketing slows them down and reveals their plans to competitors. Procter & Gam-
ble began testing a ready-to-spread Duncan Hines frosting. General Mills took note
and rushed out its own Betty Crocker brand, which now dominates the category. Fur-
thermore, aggressive competitors increasingly take steps to spoil the test markets.
When Pepsi tested its Mountain Dew sport drink in Minneapolis, Gatorade counter-
attacked furiously with coupons and ads.^32
Many companies today are skipping test marketing and relying on faster and more
economical market-testing methods. General Mills now prefers to launch new prod-
ucts in perhaps 25 percent of the country, an area too large for rivals to disrupt. Man-
agers review retail scanner data, which tell them within days how the product is doing
and what corrective fine-tuning to do. Colgate-Palmolive often launches a new prod-
uct in a set of small “lead countries” and keeps rolling it out if it proves successful.
Nonetheless, managers should consider all the angles before deciding to dispense
with test marketing. In this case, not testing a formula modification before the prod-
uct launch had disastrous—and soggy—results:
■ Nabisco Foods Company Nabisco hit a marketing home run with its Teddy
Grahams, teddy-bear-shaped graham crackers in several different flavors. So, the
company decided to extend Teddy Grahams into a new area. In 1989, it intro-
duced chocolate, cinnamon, and honey versions of Breakfast Bears Graham Ce-
real. When the product came out, however, consumers didn’t like the taste
enough, so the product developers went back to the kitchen and modified the
formula, but didn’t test it. The result was a disaster. Although the cereal may
chapter 11
Developing
New Market
Offerings^349