There are various methods for market testing which can assess aspects from the size of the market you have access to, to what impacts your potential customers’ buying decisions.
What is market testing?
Before commercialisation, it’s important to assess whether a new product will be successful at disrupting the industry and driving the bottom line. According to Entrepreneur’s encyclopaedia definition, Market Testing is defined as a way “to test multiple marketing scenarios and select the most promising for expansion.”
Market testing itself is made of trials of research that aim to answer such questions as (FuelCycle, 2019):
- What is the demand for my product or service?
- Who are my customers? What do customers think about my product or service vs. my competitor?
- What are the projected sales figures within a market for my product or service?
- Where and how can customers buy my product or service, so I can establish effective distribution and marketing channels?
- Is the geographical region apt for this type of product?
- What’s the optimal price point?
- Will the production of my product be feasible for my business?
- Who is my competition?
- What legal obstacles stand in the way of launch?
- Which sales, advertising, display, and promotion method(s) are most effective?
The importance of Market Testing
Turning a business idea into a business opportunity requires thorough evaluation and validation of the idea while modifying and adapting the idea to survive in its dynamic environment. It is important to note the difference between market and industry; Market being a group of current or potential customers who are willing and able to buy a product, while industry is a group of sellers who offer different products and services. Understanding your market and the opportunities it presents is essential when making your decision to invest. One must have a realistic consideration of the market size, cost involved in developing the product or service, and establishing whether consumers are willing to pay the selected price.
Types of market testing
Examples of market testing include:
There are many bases of segmentation which are used to categorise and group the market into subgroups of people with the same characteristics or product needs.
View all the bases of segmentation in our full whitepaper here
A top-down or bottom-up approach is used in market sizing to estimate the number of buyers of a specific product, or users of a particular service.
To determine whether a product or service will be useful to customers, different types of feasibility studies can be conducted, including:
Pricing a product is one of the most important decisions a company can make as they have to ensure they don’t overcharge, undercharge or price poorly in comparison to competitors.
There is a variety of types of ad testing, and the type used depends on how consumers in the market segment will receive the ad and the purpose of the advertisement.
Customers will have to make trade-offs in their purchasing decisions and conjoint analysis studies these trade-offs and measures the value customers place on the characteristics of a product or service.
The difference between product testing and market testing
Often Market testing and product testing are seen as the same, and although there are similarities it is important to note the differences between them.
- Product testing entails observing the performance of a product or service by gaining feedback from customers
- Market testing, on the other hand, is used for products with outcomes that are more difficult to predict. Market testing is usually used when there is inconclusive feedback and the main variation here is that market testing does not involve the consumer at all, but rather the evaluation of the market itself.
There are many benefits to product testing which include;
- Saving time and money
- Opening a feedback and improvement loop
- Offering insight into product demand
- Provides strategies for future success
Contrary to popular belief, product testing does not have to break the bank as there are many affordable ways to test your product. These include;
- Getting feedback from family and friends
- Raising money through crowdfunding
- Starting an email list to gauge interest
- Running a consumer survey
- Testing the waters with social media and Pay-Per-Click advertising
- Launching lean with a simple store, even an online one!
In conclusion, without differentiated benefits, the majority of customers are not going to buy, and without expected market growth, majority of investors are not going to invest in a new business venture. As such, testing before investing is essential, if not a must.