Question

1. Discuss the advantages and problems associated with test marketing. ​

2. What exactly is analyzed during the business analysis phase of new-product development? ​

3. ​Identify and describe the three major ways to modify existing products and give an example of each.

Answer 1

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Background

Small companies sometimes test their products in multiple markets before rolling them out on a larger scale. This allows business owners to assess the durability of their products, identify key customer groups and study sales and profits. Essentially, test marketing enables companies to determine the potential success of their products

1.Advantages and problems associated with test marketing.

1.It gives a product the chance to sell itself

Great products sell themselves. Having a great product can serve as its marketing tool. Over time, customers will come to rely on the product that they are using and decide to stick to it. When that happens, the company will have converted a free trial into a paying customer who loves the product and will come back for even more.

2.Competitive edge over similar competitor products

For some industries, providing a free product trial may not be considered the standard practice. Offering the product would then shift expectations within the targeted demographics, giving companies a chance to expose their product to interested consumers.

3.People are allowed to invest time into the brand

When people are using the products and investing time into the company, they’re naturally building a relationship with the brand. Relationships create loyalty. Loyalty creates customers who keep coming back for more great products.

4.Critical feedback is received about the product

Having each trial list upload pictures, send reports, or share the way they use their product can tap the brand into information resources that may allow them to refine or improve the product over time. This is one of the benefits of test marketing.

Disadvantages / Problems

1.Expensive.

One major disadvantage of test marketing is the cost.Companies often use focus groups to test their product concepts or ideas initially. These focus groups can cost thousands of dollars. Subsequently, companies create Beta versions of their products and test them under normal market conditions. These normal conditions include shipping products to distributors, advertising them and handling defective merchandise. Small companies also have employees working full-time on test marketing, which can get expensive. And numerous merchandise could be left over if the product fails.

2.Time-Consuming.

Test marketing is also time-consuming. Small manufacturers usually take their time with test marketing, because much is at stake. They can run their tests for six months and even one or two years. They must analyze sales and profit patterns, looking for possible seasonal trends. Marketers must evaluate the effectiveness of their advertising. It also takes consumers time to learn about a product's availability, which is another contributing factor to the duration of a test market

3.Competitive Awareness

Companies also run the risk of competitors learning about their products. Some savvy competitors might purchase the product and analyze it in their labs. Competitors can also learn more about a company's marketing and advertising strategies through test marketing. Moreover, the lengthy duration of test marketing gives competitors time to develop their own products. And these manufacturers or competitors could even roll their products out on a regional or national basis more quickly.

4.Inconclusive Results.

Small companies that use test marketing cannot always predict success. Products that sell locally or in several markets might not sell well in other geographical areas. Consumers could be loyal to certain brands in other parts of the country, for example. It also takes time to build brand awareness on a national basis, which usually involves lots of advertising. Hence, results from test marketing are not necessarily projectable.

Ans : Q.2 - Phase of new-product development - Main Point for Analysis

The Product development stage is the first part of the Product Life Cycle. This stage is not only about building the product, it includes carrying out research and testing too.

1) Market research and competitor analysis are the main part of the research for the development stage. These are done to get an idea of the potential growth for the product, and to build a business case to validate the product.

2) Gathering feedback from test users and testing the product are also vital to the development of the product.

3) Once the development of the product is complete it is ready for the introduction stage.

First Point : There are two different strategies you can use to introduce your product to consumers. You can use either a penetration strategy or a skimming strategy. If a skimming strategy is used then prices are set very high initially and then gradually lowered over time. This is a good strategy to use if there are few competitors for your product. Profits are high with this strategy but there is also a great deal of risk. If people don’t want to pay high prices you may lose out.

Second Point : Pricing strategy is a penetration strategy. In this case you set your prices very low at launch and gradually increase them. This is a good strategy to use if there are many of competitors who control a large portion of the market. Profits are not a concern under this strategy. The most important thing is to get your product known and worry about making money at a later time.

Ans : Q. 3) : There are three major ways of product modification

1) Quality modifications

These are changes that relate to a product's dependability and durability and usually are executed by alterations in the materials or production process employed. Reducing a product's quality may allow an organization to lower the price and direct the item at a larger target market.

The quality of a product may give a firm an advantage over competing brands and may allow the firm to charge a higher price because of increased quality. Or the firm may be forced to charge more because of higher costs to achieve the increased quality.

2) Functional modifications

Changes that affect a product's versatility, effectiveness, convenience, or safety are called functional modifications. They usually require redesigning the product.

Functional modifications can make a product useful to more people, which enlarges the market for it. This type of change can place a product in a favorable competitive position by providing benefits not offered by competing items. Functional modifications can also help an organization to achieve and maintain a progressive image.

3) style modifications.

Style modifications are directed at changing the sensory appeal of a product by altering its taste, texture, sound, smell, or visual characteristics. Since a buyer's purchase decision is affected by how the product looks, smells, tastes, feels, or sounds, a style modification may have a definite impact on purchases.

Through style modifications a firm can differentiate its product from competing brands and perhaps gain a sizable market share for this unique product. The major drawback in using style modifications is that their value is determined subjectively. Although a firm may modify a product to improve the product's style, customers may find the modified product to be less appealing.

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