Use a Concept Test to Validate New Product Strategies.

How can you determine if the latest new product idea will be a success? 

As the potential organizational impact of a new product introduction increases it becomes more important to find ways to improve the chances that the product will be a success.
In previous blogs I have talked about steps to create a new product:
I have also talked about a new product development process:
The product creation process and the new product development process provide a structure to methodically develop and bring a product to market. These tools however do not determine the chances that the marketing strategy for the new product will be a success.

A concept test provides a simple inexpensive way to determine the appropriate marketing strategy and to project potential sales.

Here are the steps for implementing a concept test to validate the marketing strategy for a new product.

Describe the New Product. The new product description should include all physical characteristics (this may include a mock up of the product).  Also describe marketing attributes such as price, where the product will be available and special promotional efforts.

Identify Targeted Market Segments. Identify customer segments for which the product is intended, then, further subdivide the groups by demographic characteristics. For example, if the product were a new sports automobile the most likely customer segments would be current owners of sports cars. The customer segments might be; people who only buy sports cars, people who own their first sports car and people who do not own sports cars but have other characteristics in common with sports car owners. The next step would be to take these potential customers and categorize them by demographic characteristics. The resulting categories can be cross-matched with the demographic segments to provide a better understanding of the customer base. For example one sub grouping might be females who only buy sports car that are professionals and 25 to 35 years old.

Develop a questionnaire to assess the product’s physical and marketing attributes. The questionnaire should identify key characteristics that will determine their appeal. In the case of a sports car, the questionnaire might be accompanied by a mock up or artist’s representations to make sure there are no misunderstandings when interviewing a respondent. Attributes that should be tested include: design, complexity, peer influence, pricing, intangibles (guarantees etc.) and availability (willingness to travel to purchase).  Each characteristic should be measured along a scale that can be measured (for example “On a scale from 1 to 10 how would you rate the design?”). Also include questions that measure the willingness to act ("Of the following distances, which is the farthest you would travel to purchase this product?" or "Which of the following prices do you think reflects the value of this product?").

Conduct a survey of customers from various market segments including the targeted market segment. The survey should include the broad customer segments of interest as well as those that are not considered to be likely customers. The size of the survey should provide a meaningful representation from each category. This approach will provide meaningful information about potential purchasers and people who may influence the purchaser but are not purchasers themselves.

Compile survey results to determine market size and potential revenues. After the survey has been completed and the results analyzed there should be evidence that allows managers to develop an implementation strategy for the new product that has a good chance of succeeding. The analysis should show the demographic profiles of those most likely to purchase the product, how far they will travel, the price they will pay and so on. The analysis  can also identify some potentially harmful marketing tactics that might have been used if the concept test were not employed.

Use weighted averages to determine the importance of product and marketing strategy components. Using the scales to measure the value of each marketing component on the questionnaire, develop averages for each sub group and a weighted average for the total group. For example, let's assume people who buy only sports cars would travel 30 miles to buy the "right" sports car while first time buyers would travel only 15 miles and the remaining general car buyers would only be willing to travel 10 miles. If the market were made of 15 % of the first group and 30% of the second group  and 55 % of general automobile purchasers, then the weighted average of the travel distance would be (.15 X 30 miles) + (.3 X 15 miles) + (.55 X 10 Miles) = 14.5  miles weighted average distance the purchasing groups. If however 60% of the sales were likely to come from the general automobile purchaser market then the travel travel distance would be 9.6 miles or (.4 X 9 miles) + (.6 X 10 miles). In this case using the 30 mile distance people who only bought sports cars would be willing to travel as a guide for dealership placement would be a mistake. Moving dealerships within 9.6 miles of population centers would capture more sales.

We used this process for a new product group that had proposed several alternative products to address a market threat. All of the products seemed to address the market challenge and all of the products had been through the stage-gate approach used in the new product development process mentioned earlier.

The result of the concept test allowed us to: identify the most appropriate products for the market challenge, eliminate products that would have failed, identify the best promotion and pricing strategies and estimate, with great accuracy, the revenues and profits the new products would generate.


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