Business goods can also benefit from market testing. Expensive industrial goods and new technologies will normally undergo alpha testing and beta testing. During beta testing, the vendorâ€™s technical people observe how test customers use the product, a practice that often exposes unanticipated problems of safety and servicing and alerts the vendor to customer training and servicing requirements. The vendor can also observe how much value the equipment adds to the customerâ€™s operation as a clue to subsequent pricing.
The vendor will ask the test customers to express their purchase intention and other reactions after the test. Vendors must carefully interpret the beta test results because only a small number of test customers are used, they are not randomly drawn, and the tests are somewhat customized to each site. Another risk is that test customers who are unimpressed with the product may leak unfavorable reports about it.
A second common test method for business goods is to introduce the new product at trade shows. The vendor can observe how much interest buyers show in the new product, how they react to various features and terms, and how many express purchase intentions or place orders.
New industrial products can be tested in distributor and dealer display rooms, where they may stand next to the manufacturers other products and possibly competitors products. This method yields preference and pricing information in the productâ€™s normal selling atmosphere. The disadvantages are that the customers might want to place early orders that cannot be filled, and those customers who come in might not represent the target market. Industrial manufacturers come close to using full test marketing when they give a limited supply of the product to the sales force to sell in a limited number of areas that receive promotion support and printed catalog sheets.
If the company goes ahead with commercialization, it will face its largest cost to date. The company will have to contract for manufacture or build or rent a full scale manufacturing facility. Plant size will be critical decision. When Quaker Oats launched its 100 percent natural breakfast cereal, it built a smaller plant than called for by the sales forecast. The demand so exceeded the forecast that for about a year it could not supply enough product to stores. Although Quaker Oats was gratified with the response, the low forecast cost it a considerable amount of profit.
Another major cost is marketing. To introduce a major new consumer packaged good into the national market, the company may have to spend from $25 million to as much as $100million in advertising, promotion, and other communications in the first year. In the introduction of new food products, marketing expenditures typically represent 57 percent of sales during the first year. Most new product campaigns rely on a sequenced mix of market communication tools.
In commercializing a new product, market entry timing is critical. Suppose a company has almost completed the development work on its new product and learns that a competitor is nearing the end of its development work. The company faces three choices:-
1. First entry: The first firm entering a market usually enjoys the â€œfirst mover advantagesâ€ of locking up key distributors and customers and gaining leadership. But if the product is rushed to market before it is thoroughly debugged, the first entry can backfire.
2. Parallel entry: The firm might time its entry to coincide with the competitorâ€™s entry. The market may pay more attention when two companies are advertising the new product.
3. Late entry: The firm might delay its launch until after the competitor has entered. The competitor will have borne the cost of educating the market, and its product may reveal faults the late entrant can avoid. The late entrant can also learn the size of the market.
The timing decision involves additional considerations. If a new product replaces an older product, the company might delay the introduction until the old products stock is drawn down. If the product is seasonal, it might be delayed until the right season arrives; often a product waits for a killer application to occur. Complicating new product launches, many companies are encountering competitive â€œdesign-aroundâ€ rival are imitating inventions but making their own versions just different enough to avoid patent infringement and the need to pay royalties.